- Prospect Theory proposes that investors’ decision-making processes are contingent on the perceived values and costs of gains and losses, rather than the likelihood of each outcome.
- Loss aversion suggests that investors tend to be disproportionately risk averse in relation to their expected outcomes in order to avoid the pain associated with financial loss.
- Regret aversion posits that investor indecision and failure to take action typically stems from wanting to avoid responsibility for a poor result
More from the Behavioral Finance Series
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