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Prospect theory: The framework and application areas

Vol. 25, Iss. 4, APRIL 2019

Received: 19 February 2019

Received in revised form: 11 March 2019

Accepted: 25 March 2019

Available online: 26 April 2019

Subject Heading: THEORY OF FINANCE

JEL Classification: C9, C92, D81, D90, G02

Pages: 755–768

Bogatyrev S.Yu. Financial University under Government of Russian Federation, Moscow, Russian Federation

Subject The paper examines the Prospect theory, as well as the tools and research methods of behavioral finance based on this theory.
Objectives I am to allocate the most important elements of the Prospect theory and show their development and practical implementation in modern conditions.
Methods The study uses the method of historical periodization, historical-systemic and historical-comparative methods. It also applies methods of formal logic, such as: analysis, synthesis, induction, hypothesis.
Results The fundamentals of Prospect theory described in the article are guidelines for setting up practical research in the field of finance to take into account the fundamental assumptions underlying the behavior of persons taking financial decisions in the face of risk and uncertainty in obtaining benefits or losses.
Conclusions and Relevance The article outlines the directions and areas of application of the Prospect theory in the Russian financial research practice. One can apply the research results to analyze the behavior of investors in the stock market and in corporate finance in terms of crisis. The practical and experimental components are little developed and need further research.

Keywords: behavioral finance, financial policy, utility, heuristics, Prospect theory


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