Excellent Piece of Article.
i do agree that time has come to include behavioral finance insight with MPT while constructing clients's portfolio. The biggest culprits is creation of Clients's optimal portfolio (risk free Asset + Market Portfolio) considering Investor's indiffernce curve. However - Investor's indifference curve is derived out of risk assessment profile - which is faulty (as author has highlighted). Only Behavioral finance can provide insight why a risk averse client - who buys insurance to protect his wealth as well buys a lottery .
My recommendation will be to get rid of risk questionnaire (which is based on template - blame it upon laziness of Institutional approach - one size fits all) and gain insight based on Investor's past financial decision. It could have been difficult in past - but with recent technology trends / data science fundamentals - It will not be difficult to derive a subjective client specific view based on his past trading decisions (fo obvious reasons, One need to separate his current repetitive decisions, trading decisions, checking / balance accounts, use of mortgages / debts , 401 or IRA account decisions and other factors). This is expected to rationalize true risk assessment of client .
Once again - this was an excellent read and thanks for this insight.