ba736

Here is what we thought:
Prospect theory is a framework that attempts to describe the decision making process made by a human being and non-rational investor. Utility theory is the opposite, the framework for the rational investor, which is based on an absolute frame rather than a subjective one.
Utility theory tell us how to construct a portfolio in an objective manner, and comes up with mean-variance optimization. But in reality, many construct portfolios differently, for example they exhibit loss aversion.
This loss aversion is reflected in the example by the different bounds for selling a gain and a loss. A loss is only sold at -25%, presumably to allow a smaller loss to re-gain in value because the investor does not want to accept a loss easily.
Behavoural portfolio theory describes this and other phenomena which gives rise to different portfolios than those prescribed by mean-variance derived from utility theory.
Prospect theory is not the right answer, because it is a decision making framework which is probably the basis of behavioural portfolio theory BUT ONLY for specific frame that for example give rise to loss aversion. It says how we decide, and BPT says how we construct portfolios based on the how.