Probability Function among Investors using Prospect Theory

Probability Function among Investors using Prospect Theory | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Probability Function among Investors using Prospect Theory Anwar Almualim, Ramsha Shafqat This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-4268394/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract In this study, we test an investor's market behavior using probability functions. Furthermore, by establishing a consistent mean-variance model based on compound independent axioms with a unique certainty equivalency C = u −1 (E(u(X)], we present an alternate strategy to solve cooperative investment in a dynamic manner for mean-variance utility function. As a result, an explicit formula based on the exponential utility function over the normal distribution is established to approximate the certainty equivalent for each investor corresponding to the mean-variance utility function. Furthermore, we dene how alternative decision-making theories, like prospect theory, can be applied to solve cooperative investment schemes by taking investors' preferences into account as a function of choice, and we make the assumption that weight does not always have to coincide with probability. Therefore, Prospect Theory (PT) argues that decision weights have a tendency to underweight moderate and high probabilities and overweight small ones. Furthermore, the Prospect Theory Approach can be used to make investors' perceptions of risk consistent with logical decision-making through the use of suitable modeling. Additionally, a numerical experiment using S&P100 data is displayed. Pareto optimal certainty equivalent prospect theory Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-4268394","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":292078340,"identity":"3e6d2896-c3ba-4832-8239-4e5c320f6760","order_by":0,"name":"Anwar Almualim","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA6UlEQVRIiWNgGAWjYFAC5gYgYcHAwN4G5jI2ENYCViPBwMBzjGQtEmlEauFvP9i6madGQk535rPkzzwMNrIbDrA//IBPi8SZxLbbPMckjM1upx2T5mFIM95wgMdYAq81B0Ba2CQSt91Ob2PmYTicCNTCgFeL/PmHQC3/JOq33TzeDHTYf6AW9sc/8GkxuAG0hbdNIsHsBtsBoMMOALUwmOG1xfDGw7abc/skDLedSUuTnGOQbDzzMI+ZBT4tcueTj914881G3uz4MeMPbyrsZPuOtz++gU8LujuBmJkE9aNgFIyCUTAKsAMAI9NOIz2eT2cAAAAASUVORK5CYII=","orcid":"","institution":"King Saud University","correspondingAuthor":true,"prefix":"","firstName":"Anwar","middleName":"","lastName":"Almualim","suffix":""},{"id":292078341,"identity":"df9f7190-05c5-412e-a9c7-f337b754c58a","order_by":1,"name":"Ramsha Shafqat","email":"","orcid":"","institution":"University of Lahore","correspondingAuthor":false,"prefix":"","firstName":"Ramsha","middleName":"","lastName":"Shafqat","suffix":""}],"badges":[],"createdAt":"2024-04-15 08:43:12","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-4268394/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-4268394/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":58123806,"identity":"5b2cef27-4d96-4a28-8ed3-2db72cac9208","added_by":"auto","created_at":"2024-06-11 12:44:27","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":476378,"visible":true,"origin":"","legend":"","description":"","filename":"DynamicCooprateinvestment.pdf","url":"https://assets-eu.researchsquare.com/files/rs-4268394/v1_covered_c610b4b2-a7f6-499e-834a-2d0f923856a0.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Probability Function among Investors using Prospect Theory","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Pareto optimal, certainty equivalent, prospect theory","lastPublishedDoi":"10.21203/rs.3.rs-4268394/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-4268394/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"In this study, we test an investor's market behavior using probability functions. 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