Prospect theory: A parametric analysis of functional forms in Brazil

• Autor(a) principal: Lobel, Robert Eugene
• Data de Publicação: 2017
• Outros Autores: Klotzle, Marcelo Cabus, Silva, Paulo Vitor Jordão da Gama, Pinto, Antonio Carlos Figueiredo
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Revista de Administração de Empresas
• Texto Completo: https://periodicos.fgv.br/rae/article/view/71818
• topic: Behavioral finance; prospect theory; value function; weighting function; Brazil.; Finanzas comportamentales; teoría prospectiva; función de valor; función de ponderación; Brasil.; Finanças comportamentais; teoria do prospecto; função valor; função peso; Brasil.

This study aims to analyze risk preferences in Brazil based on prospect theory by estimating the risk aversion parameter of the expected utility theory (EUT) for a select sample, in addition to the value and probability function parameter, assuming various functional forms, and a newly proposed value function, the modified log. This is the first such study in Brazil, and the parameter results are slightly different from studies in other countries, indicating that subjects are more risk averse and exhibit a smaller loss aversion. Probability distortion is the only common factor. As expected, the study finds that behavioral models are superior to EUT, and models based on prospect theory, the TK and Prelec weighting function, and the value power function show superior performance to others.  Finally, the modified log function proposed in the study fits the data well, and can thus be used for future studies in Brazil.