Relationship between (under)confidence and prospect theory in risky decisions: Challenges for financial literacy policies

dc.contributor.authorRobalinho, Joana
dc.contributor.authorGomes, Luís
dc.contributor.authorMendonça, Jorge
dc.contributor.authorPacheco, Luís Miguel
dc.date.accessioned2025-01-14T17:41:03Z
dc.date.available2025-01-14T17:41:03Z
dc.date.issued2024-12-01
dc.description.abstractThe principal objective of this article is to gain insight into the biases that shape decision-making in contexts of risk and uncertainty, with a particular focus on the prospect theory and its relationship with individual confidence. A sample of 376 responses to a questionnaire that is a replication of the one originally devised by Kahneman and Tversky was subjected to analysis. Firstly, the aim is to compare the results obtained with the original study. Furthermore, the Cognitive Reflection Test (CRT) will be employed to ascertain whether behavioural biases are associated with cognitive abilities. Finally, in light of the significance and contemporary relevance of the concept of overconfidence, we propose a series of questions designed to assess it, with a view to comparing the various segments of respondents and gaining insight into the profile that reflects it. The sample of respondents is divided according to gender, age group, student status, professional status as a trader, status as an occasional investor, and status as a behavioural finance expert. It can be concluded that the majority of individuals display a profile of underconfidence, and that the hypotheses formulated by Kahneman and Tversky are generally corroborated. The low frequency of overconfident individuals suggests that the results are consistent with prospect theory in all segments, despite the opposite characteristics, given the choice of the less risk-averse alternative. These findings are useful for regulators to understand how biases affect financial decision making, and for the development of financial literacy policies in the education sector.
dc.identifier.citationRobalinho, J., Gomes, L., Mendonça, J., & Pacheco, L. M. (2024). Relationship between (under)confidence and prospect theory in risky decisions: Challenges for financial literacy policies. Journal of Infrastructure, Policy and Development, 8(15), 1-24. https://doi.org/10.24294/jipd9896. Repositório Institucional UPT. https://hdl.handle.net/11328/6051
dc.identifier.issn2572-7931
dc.identifier.issn2572-7923
dc.identifier.urihttps://hdl.handle.net/11328/6051
dc.language.isoeng
dc.publisherEnPress
dc.relation.hasversionhttps://doi.org/10.24294/jipd9896
dc.rightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/
dc.subjectBehavioral finance
dc.subjectexpected utility theory
dc.subjectprospect theory
dc.subjectcognitive reflection test
dc.subjectoverconfidence
dc.subjectfinancial development policies
dc.subject.fosCiências Sociais - Economia e Gestão
dc.titleRelationship between (under)confidence and prospect theory in risky decisions: Challenges for financial literacy policies
dc.typejournal article
dcterms.referenceshttps://systems.enpress-publisher.com/index.php/jipd/article/view/9896
dspace.entity.typePublication
oaire.citation.endPage24
oaire.citation.issue15
oaire.citation.startPage1
oaire.citation.titleJournal of Infrastructure, Policy and Development
oaire.citation.volume8
person.familyNamePacheco
person.givenNameLuís Miguel
person.identifier.ciencia-idBF16-0EF2-107B
person.identifier.orcid0000-0002-9066-6441
person.identifier.ridE-5193-2010
person.identifier.scopus-author-id55945343700
relation.isAuthorOfPublicationa25aba90-4787-45a8-b908-646f24b32dfc
relation.isAuthorOfPublication.latestForDiscoverya25aba90-4787-45a8-b908-646f24b32dfc

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