Prospect Theory

I’m working hard these days in learning how to calibrate the parameters of the piecewise value function and the probability weighting function according to Tversky and Kahneman’s (1992) Cumulative Prospect Theory. I guess probably most of you don’t know what I’m talking about, but no worries, it doesn’t matter. I’m just working hard for my thesis, and I saw this:

 

 

This is the number of academic papers about Prospect Theory in Economics, Finance and Social Sciences that can be found in Scopus database since Kahneman and Tversky’s (1979) “Prospect Theory: An analysis of decision under risk”, the most cited paper in ‘Econometrica’ and for which they were eventually granted with the Nobel prize in Economics in 2002 (well, actually only Kahneman because Tversky was dead already, but we all know the prize was a recognition for both researchers).

 

Until the 1990s Behavioral Finance (and particularly Prospect Theory) was a field only for ‘geeks’. Now it has changed. Well, that is true particularly in most Universities around the world, but not here! This is dedicated to all my mates in Universidade da Coruña and BBVA who still wonder “what is that you are working on? psychology or something?”

 

If you want to learn more about Behavioral Finance you may read this article (Noahpinion, “Behavioral finance people are doing experiments!”) if you have a couple of minutes, or watch this amazing documentary, ‘El poder del dinero’ (spanish)…

 

 

…if you have an hour or so.

 

(‘El poder del dinero’ is a documentary broadcasted by Documentos TV of RTVE, but it is not available there anynmore. I found it on the youtube and there you can see it if you click on the image above).

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