Analysis Of Individual Investment Decision Based On Regret Aversion

Traditional finance theory explained financial phenomena based on rational agent theory in which ration has two major implications:individuals update their beliefs according to Bayesian Law when new information arrived and given some belief, individuals make their decisions based on their subjective expected utilities. In reality, most individual investors are not fully rational and their investment decisions will be impacted by psychological factors of themselves which reduce their final returns, such as envy and regret.Two issues are studied in this dissertation one of which is the impact of envy emotion on individual investment decision and the other is the impact of regret psychology on individual investment decision. These two issues are the same in nature, both of them research making investment decisions based on reference object except different references, the former refer to another investors, the latter himself or herself. Specific results of this dissertation are as follows:An envy model is established which quantitatively characterizes impacts of envy emotion on the investment behaviors of individuals and get a conclusion that in a given economic environment, envy emotion leads to the convergence of individuals'investment strategies in uncertain way, both risk attitude and envy degree of investors have effects on individuals'investment strategies based on relative magnitude.The minimum anticipated regret volatility model is established based on anticipated regret function to analyse the impacts of regret psychology on the investment behaviors of individuals. According to an empirical analysis, it finds that regret psychology has significant impact on investors' optimal portfolio strategies and risks confronted.