Modern portfolio theory (
MPT) is a theory of
finance that attempts to maximize portfolio expected
return for a given amount of portfolio risk, or equivalently minimize
risk for a given level of expected return, by carefully choosing the proportions of various
assets. Although MPT is widely used in practice in the financial industry and several of its creators won a
Nobel memorial prize for the theory, in recent years the basic assumptions of MPT have been widely challenged by fields such as
behavioral economics.