Profit, Cost, and Capital Allocation

Profit, Cost, and Capital Allocation covers economic theory, expectations, incentives, agency problems, information frictions, behavioral finance, profit, cost, and capital-allocation concepts used in finance.

Use these pages when a theory term helps explain investor behavior, policy credibility, market efficiency, pricing frictions, corporate decisions, or model assumptions. It sits inside Economic Theory and Behavior, so readers can move up when the broader economics context matters.

This landing page points readers toward Opportunity and Sunk Costs, and Profit Concepts and Economic Rents. Choose the narrower page when the term changes the evidence source, calculation, institution, market convention, risk exposure, or decision being made.

What This Branch Covers

What to Check

• Behavioral, informational, agency, expectation, profit, or cost concept.
• Model assumption and what would falsify it.
• Market, company, investor, or policy setting involved.
• Evidence available versus theoretical claim.
• Valuation, risk, pricing, or governance conclusion affected.

Common Mistakes

• Treating a theory as proof without evidence.
• Using behavioral labels to explain every price move after the fact.
• Mixing accounting profit, economic profit, and cash flow.
• Ignoring agency, information, and incentive differences between parties.

Theory pages are educational and do not diagnose individual behavior or recommend a security, strategy, or policy.

In this section

Choose a subsection first. Deeper term pages live inside each subsection, which keeps large topic hubs readable.