Application of Behavioral Portfolio Theory for Investment Decisions

Jane is a 35-year-old marketing executive who has recently received a substantial bonus. She is considering how to allocate this bonus into her investment portfolio. Jane's past experience with investments has been marked by significant emotional decision-making, often leading her to chase past performance and make reactive trades.

Jane also has specific financial goals: saving for a down payment on a house in the next five years and funding her children's college education in 15 years. Understanding that she tends to have an emotional bias towards riskier assets, she is uncertain whether her portfolio allocation should lean towards high-growth stocks or more stable bonds.

In this context, discuss how Behavioral Portfolio Theory (BPT) can be applied to Jane's investment decisions. Analyze the implications of her behavioral biases and how they may impact her asset allocation strategy. Additionally, provide recommendations for how Jane can structure her portfolio to align with her goals while mitigating the effects of her biases.