Author(s)

Wen Wan

Corresponding Author

Wen Wan

Abstract

In the stock market, influenced by information acquisition, risk preference and other factors, investors' investment decision and behaviors are difficult to be fully rational, so the "rational person" assumption of traditional finance theory is not realistic. Based on behavioral economics, this paper expounds the theoretical basis of prospect theory and explains the irrational investment decision behavior of investors in stock market based on prospect theory. Finally, the paper concludes the investment decision-making frame based on prospect theory. The study of prospect theory can explain investor’s emotion and irrational decision-making, and then analyze the investor’s investment decision behavior.

Keywords

Investment decision, Value function, Prospect theory.