Behavioral Finance: Prospect Theory Topics in Decision-Making

Decision-making by financial market stakeholders is a complex process. For this reason, the analysis and interpretation of investors behavior in this environment should deploy different fields of expertise, such as psychology and sociology. Refuting the principle of complete human rationality, Kahneman and Tversky [1] explore a set of effects, considering cognitive biases that underlie the (often) paradoxical behavior of individuals. Behavioural finance studies these biases and their implications on the decision-making process of investors. Being a relatively new area of knowledge, the challenges it poses to traditional finance is not yet fully explored. This motivated our work, which aims to revisit the contributions of the prospect theory in explaining the decision-making process of individuals. The topic is important because it highlights the opportunity of developing financial literacy in academic training plans and contributes to clarify the expectations of the decision-making process.