Cumulative Prospect Theory and Radner Theory: A Critical Assessment from Nigeria
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Date
2020-12-15
Journal Title
Journal ISSN
Volume Title
Publisher
Asian Journal of Economics, Business and Accounting
Abstract
Aims: This study undertook a critical comparative assessment of cumulative prospect theory and
Radner theory. The aim is to examine investors’ behavior in the financial market using these
theories. The specific objectives of the study were to examine if there are similarities between the
cumulative prospect theory and Radner theory; ascertain the implications of the cumulative prospect
theory to financial market; find out the implications of the Radner theory to financial market; and
assess the drawbacks of the cumulative prospect a’’nd Radner theories.
Methodology: The study used the desk top library research approach’’ to survey relevant extant
literatures on investors’ behaviour in relation to cumulative prospect theory and Radner’’ theory in a
comparative manner.
Results: Findings indicate that investors’ behaviour in investment/consu’’mption decision making is
predicated on attitude to risk/uncertainty. They prefer higher return to lower risk; higher ‘’satisfaction
from commitment of wealth to asset bundle under condition of general equilibrium. These
behavioural dispositions have been observed and addressed in the cumulative prospect theory and Radner theory. The finding of this study is that the cumulative prospect and Radner theories serve
as the barometers with which investors’ direction of investments are constantly monitored in the
stock market globally.
Recommendation: This study therefore recommends that financial analysts and market participants
should frequently combine the rudiments of the traditional finance and behavioural finance in
analyzing investments as well as observing reactions of myriad competing investors, particularly in
perfect markets or in incomplete markets.
Description
Staff Publication
Keywords
Investors’ behavior;, cumulative prospect theory;, radner theory, general equilibrium.
Citation
Ogbeide, S., & Okpamen, P. (2020). Cumulative Prospect Theory and Radner Theory: A Critical Assessment from Nigeria. Asian Journal of Economics, Business and Accounting 20(3): 31-38. DOI: 10.9734/AJEBA/2020/v20i330325