BeFi - Investment Decision-Making:  Lecture 3 - Prospect theory

Herman Brodie  |  Prospecta  |  0.50 CE


Making an investment decision, especially when buying or selling a security, means the investor will immediately be faced with an unrealised gain or an unrealised loss. From that moment, the investor’s world and perceptions will change, their judgments will change, their very notion of risk will change. The ability of prospect theory to explain many observations in both investing and everyday decision-making made it an incredibly powerful approach in economics. But that wasn’t enough to allow it to challenge ‘expected utility theory’. To do that it needed to consider ...

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