Abstract
The study aims to test whether the impact of the investors’ psychological factors on their investment decisions conforms to the prospect theory or not. The used methodologyin is to interview by setting up assumption with different probability but the same expectation mean result. The survey of 422 investors on Vietnam Stock Market shows that the inconsistent psychology (irrational) exists commonly in the market. The investors show the risk-seeking tendency in risky situation and risk-aversion psychology in safe circumstances. The study reconfirms that the investors in Vietnam Stock Market are irrational investors.
Highlights
According to the normative theory, people should take the action in some way
We have demonstrated the usefulness of this theory in describing people’s behavior, but a lot of people ask the question, in the practical, how well this theory can describe behavior? Almost financial models mainly assume that investors assess investing risks as well as opportulities based on the expected utility theory by JohnVon Neumann and Oskar Morgenstern (1944), which means that the individual investor trades rationally as “rational” economic people and the investors make selections to maximize the final value of final asset according to risky conditions
The prospect theory was developed by Daniel Kahneman và Tversky (1979) and was improved by Tversky and Daniel Kahneman (1992) to be the Cumulative Prospect Theory, which was considered as a perfect support for the Expected Utility Theory
Summary
According to the normative theory, people should take the action in some way. In contrast, according to the positive theory, people set up models from what they have done. Almost financial models mainly assume that investors assess investing risks as well as opportulities based on the expected utility theory by JohnVon Neumann and Oskar Morgenstern (1944), which means that the individual investor trades rationally as “rational” economic people and the investors make selections to maximize the final value of final asset according to risky conditions. Empirical studies taken by behavior behavioral financial researchers, namely Simon (1959, 1978 and 1987) and Kahneman and Tversky (1979, 1981, 1982 and 1992) proved that assumptions in tradional financial theories in general and in prospect utility theory in particular contain empirical imperfection. Typical researchers finding out the inperfection of the “expected utility” theory, Kahneman and Tversky (1979) has made a range of testing to illustrate that people do not follow the expected utility theory systematically as they select risky assets. The prospect theory was developed by Daniel Kahneman và Tversky (1979) and was improved by Tversky and Daniel Kahneman (1992) to be the Cumulative Prospect Theory, which was considered as a perfect support for the Expected Utility Theory
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