The Role of Prospect Theory in the Perceived Moral Reprehensibility of Strategic Mortgage Default

2014 ◽  
Author(s):  
Michael Joseph Seiler
Keyword(s):  
Prospect Theory ◽  
Mortgage Default

scholarly journals Kahenman and Tversky’s Research on Heuristics and Its Application to Junior Athletic Development and the College Recruiting Process

2017 ◽  
Vol 7 (2) ◽  
pp. 23
Author(s):  
Brendan M. Ryan
Keyword(s):  
Prospect Theory ◽  
Recruitment Process ◽  
College Recruitment ◽  
Junior Athletes ◽  
Individual Use ◽  
Athletic Development ◽  
Rational Decisions

This paper will apply the work of Amos Tversky and Daniel Kahneman in Prospect theory to the college recruiting process. Prospect theory challenges one of the fundamental ideas of Economics; humans are rational creatures and make rational decisions. The theory demonstrates that in fact, often humans do not make rational decisions and are instead subject to “heuristics”. Heuristics are mental shortcuts individual use to solve problems. The paper will both explain heuristics, as well as demonstrate how coaches, administrators, and junior athletes should be aware of the role of heuristics in both long-termdevelopments, as well as the college recruitment process.

scholarly journals Primate anterior insular cortex represents economic decision variables postulated by Prospect theory

2020 ◽  
Author(s):  
You-Ping Yang ◽  
Xinjian Li ◽  
Veit Stuphorn
Keyword(s):  
Prospect Theory ◽  
Reference Point ◽  
Contextual Information ◽  
Insular Cortex ◽  
Risk Attitude ◽  
Risky Decision ◽  
Anterior Insular Cortex ◽  
Decision Variables ◽  
Gain Loss

AbstractIn humans, risk attitude is highly context-dependent, varying with wealth levels or for different potential outcomes, such as gains or losses. These behavioral effects are well described by Prospect Theory, with the key assumption that humans represent the value of each available option asymmetrically as gain or loss relative to a reference point. However, it remains unknown how these computations are implemented at the neuronal level. Using a new token gambling task, we found that macaques, like humans, change their risk attitude across wealth levels and gain/loss contexts. Neurons in their anterior insular cortex (AIC) encode the ‘reference point’ (i.e. the current wealth level of the monkey) and the ‘asymmetric value function’ (i.e. option value signals are more sensitive to change in the loss than in the gain context) as postulated by Prospect Theory. In addition, changes in the activity of a subgroup of AIC neurons are correlated with the inter-trial fluctuations in choice and risk attitude. Taken together, we find that the role of primate AIC in risky decision-making is to monitor contextual information used to guide the animal’s willingness to accept risk.

Antecedents to heuristics: decoding the role of herding and prospect theory for Indian millennial investors

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Preeti Goyal ◽  
Poornima Gupta ◽  
Vanita Yadav
Keyword(s):  
Prospect Theory ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Future Research ◽  
Content Type ◽  
Financial Investment ◽  
Financial Products ◽  
Financial Planners ◽  
The Impact

PurposeThe purpose of this paper is to explore how heuristics are formed and whether herding and prospect theory act as antecedents to heuristics. The relationship is explored specifically for millennials.Design/methodology/approachThe proposed relationship is explored specifically for millennials. Herding and prospect theory are modelled as antecedents to heuristics. The study uses survey data from 923 millennials from India to test the model for two financial products: equity and mutual funds. Regression analysis is used to evaluate the model.FindingsFindings support the role of herding and prospect theory as antecedents to heuristics of millennials although to varying degrees for equity and mutual fund investments. The impact of herding on heuristics is likely to be smaller for equity investments as compared to mutual fund investments.Research limitations/implicationsThe findings provide insights into how heuristics are formed for millennials. The findings add to literature by beginning a new line of inquiry on how heuristics are formed. Since the model is tested on a single generation, future research can test the model on other generations. In addition, future research can also add more antecedents to our proposed model.Practical implicationsFindings from this study can provide financial planners and marketers with an understanding of how heuristics are formed for millennials. Financial planners can use these insights while providing financial advice to this generation and marketers can use them to create more relevant outreach.Social implicationsFinancial investments are an important conduit for financial security. By understanding the cognitive processes that influence financial investment decision-making, it is possible for educators to create content appropriately and for financial planners to advise clients accordingly to enable optimal financial decisions that will be wealth-creating.Originality/valueExisting literature primarily treats heuristics, herding and prospect theory as being independent of each other. The authors take a novel approach to model the antecedents to heuristics to be herding and prospect theory. The model is tested on millennials for two financial products: equity and mutual funds.

Understanding Decision Making in the Adoption of Digital Health Technology: The Role of Behavioural Economics’ Prospect Theory (Preprint)

2021 ◽  
Author(s):  
Waqas Ullah Khan ◽  
Aviv Shachak ◽  
Emily Seto
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Digital Health ◽  
Health Technology ◽  
Behavioural Economics ◽  
Individual Level ◽  
Health Technologies ◽  
Research Article ◽  
The Individual

UNSTRUCTURED The decision to accept or reject new digital health technologies remains an ongoing discussion. Over the past few decades, interest in understanding the choice to adopt technology has led to the development of numerous theories and models. In 1979, however, psychologists Kahneman and Tversky published their seminal research article that has pioneered the field of behavioural economics. They named their model the “prospect theory” and used it to explain decision making behaviours under conditions of risk and uncertainty as well as to provide an understanding of why individuals may make irrational or inconsistent decisions. Although the prospect theory has been used to explain decision making in economics, law, political science, and clinically at the individual level, its application to understanding choice in the adoption of digital health technology has not been explored.

Theory of Behavioral Finance

2015 ◽  
pp. 1-24 ◽  
Author(s):  
Jaya M. Prosad ◽  
Sujata Kapoor ◽  
Jhumur Sengupta
Keyword(s):  
Financial Markets ◽  
Prospect Theory ◽  
Behavioral Finance ◽  
Individual Investors ◽  
Market Conditions ◽  
Market Anomalies ◽  
Behavioral Theories ◽  
Portfolio Managers ◽  
Academic Events

This chapter explores the evolution of modern behavioral finance theories from the traditional framework. It focuses on three main issues. First, it analyzes the importance of standard finance theories and the situations where they become insufficient i.e. market anomalies. Second, it signifies the role of behavioral finance in narrowing down the gaps between traditional finance theories and actual market conditions. This involves the substitution of standard finance theories with more realistic behavioral theories like the prospect theory (Kahneman & Tversky, 1979). In the end, it provides a synthesis of academic events that substantiate the presence of behavioral biases, their underlying psychology and their impact on financial markets. This chapter also highlights the implications of behavior biases on financial practitioners like market experts, portfolio managers and individual investors. The chapter concludes with providing the limitations and future scope of research in behavioral finance.

Left-Digit Effect in Tourists’ Price Evaluations: The Moderating Role of Price Level and Composite Price

2020 ◽  
pp. 004728752095741
Author(s):  
Suiwen (Sharon) Zou ◽  
James F. Petrick
Keyword(s):  
Prospect Theory ◽  
Price Level ◽  
Perceived Value ◽  
Past Research ◽  
Purchase Intentions ◽  
Hotel Room ◽  
Per Se ◽  
The Relationship ◽  
Moderating Role

Past research has found that the effect of odd-ending price (e.g., $9.99) can be explained by the left-digit effect whereby the leftmost digits of both prices influence the comparison of a pair of prices. However, research on psychological pricing has mostly focused on low-priced retailing products and the focal product’s price per se. Informed by prospect theory, this study extended this line of work by examining how the effect of left-digit pricing varies with the magnitude of hotel room rates (i.e., price level) and the size of prior investment in other travel components (i.e., composite price). The results of 2×2×2 experimental revealed that left-digit pricing was an effective tactic to increase purchase intentions for low-priced hotels. It was also found that tourists who have made a substantial prepayment on other travel components were responsive to the tactic. Additionally, composite price and left-digit pricing were found to moderate the relationship between perceived value and purchase intentions.

scholarly journals Three Cheers—Psychological, Theoretical, Empirical—for Loss Aversion

2005 ◽  
Vol 42 (2) ◽  
pp. 129-133 ◽  
Author(s):  
Colin Camerer
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Loss Aversion ◽  
Special Role ◽  
Open Questions ◽  
Increased Sensitivity ◽  
Psychological Foundation ◽  
Petersburg Paradox ◽  
Stable Feature

This note emphasizes the special role of prospect theory in drawing psychophysical considerations into theories of decision making with respect to risk. An example of such a consideration is the dependence of outcome value on a reference point and the increased sensitivity of loss relative to gain (i.e., loss aversion). Loss aversion can explain the St. Petersburg paradox without requiring concave utility, it has the correct psychological foundation, it is theoretically useful, and it is a parsimonious principle that can explain many puzzles. A few open questions are whether loss aversion is a stable feature of preference, whether it is an expression of fear, and what are its properties.

Sign in / Sign up

Export Citation Format

Share Document