In this paper, an attempt has been made to study asset pricing and finance as a stochastic and behavioral process. In such a process, preferences and psychology of agents represent the most important factor in the decision making of people. Individuals have their own way of getting the information they need, of dealing with them and of making predictions and decisions. People usually do not behave consistently, but they do learn. Therefore, in order to understand their behavior on the markets, a new paradigm is needed.

Daily movements in asset prices are the main characteristic in financial markets and are by now very hard to forecast with certainty. It is impossible to predict the behavior of agents in the market, because people use their own reasoning for decision-making. In this setting, the only common knowledge in the society could be summed in the words of Hayek (1945, p. 519), "Knowledge of the circumstances of which we must make never exist in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess."

This explains why market participants make their own predictions of the stock prices according to their own knowledge and their own `subjective formation of expectations,'which makes such agent's behavior and price formation impossible to forecast with certainty. On the other hand, such daily price movements give evidence that agents on the market agree that they disagree about the prices. Therefore, the fundamental question people face in their asset management is what is the best strategy for playing the stock market and to what extent can the past movements in stock prices be used to make predictions of the future prices? Is it better to be focused on `fundamentals,' whatever they are and whatever way they are measured, or to follow the `psychology of the market,' whatever this is? These questions also lie in the heart of the Markowitz's portfolio selection (Markowitz, 1952) and provided `answers' within two concepts: finance as a predictable deterministic process and as a non-predictable stochastic process.

Stochastic Processes, Behavioral Finance, Asset management, Stock market, Non-predictable stochastic process, Artificial stock exchange market, Agent-based economics, Agent-based modeling, Decision-making processes, Social networking.