AN ENHANCEMENT EDAS METHOD BASED ON PROSPECT THEORY

Decision-making is the process of carefully considering multiple options and choosing the best one. The EDAS (evaluation based on distance from average solution) method has been studied in many multi-attributes decision-making (MADM) problem which assumes decisionmaking under absolute rationality. However, people usually show the characteristics of bounded rationality in the real decision-making process. Prospect theory (PT) utilizes gains and losses relative to the reference point to explain this phenomenon better. In this paper, an enhancement EDAS method based on PT will be proposed, which shows better properties in practice. We apply the traditional EDAS method and enhancement EDAS method to the same case and we utilize the sensitivity analysis and comparative analysis to analyze their performances. The result shows that our approach has a superiority compared with the traditional EDAS method. The methods we present are of great significance for investment decision-making problems, new product development, design plan selection and supplier selection.

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Decision-making of investment in navigation safety improving schemes with application of cumulative prospect theory

Proceedings of the Institution of Mechanical Engineers Part O Journal of Risk and Reliability ◽

10.1177/1748006x18757085 ◽

2018 ◽

Vol 232 (6) ◽

pp. 710-724 ◽

Cited By ~ 1

Author(s):

Lei Wang ◽

Qing Liu ◽

Tongle Yin

Keyword(s):

Decision Making ◽

Prospect Theory ◽

Investment Decision ◽

Cumulative Prospect Theory ◽

Decision Makers ◽

Investment Decision Making ◽

Risk Appetite ◽

Safety Investment ◽

Navigation Safety

Navigation safety improving investment aims at mitigating risk and improving safety of shipping system, while decision-makers’ attitudes toward the uncertainty of shipping safety possess a characteristic of “bounded rationality.” To study the tendency of shipping safety investment decision-making with different risk perception and appetite, a decision-making method based on cumulative prospect theory is proposed in this article. First, we extract the decision attributes through analyzing the factors affecting shipping safety investment. Then, according to cumulative prospect theory, the value function and the probability weighting function for calculating cumulative prospect values of shipping investment attributes are given. Under the risk-based multi-attribute group decision-making framework, linear programming model and projection method are introduced to aggregate the weights of attributes and decision-makers, respectively. Furthermore, through a case study, the proposed methodology is utilized in Three Gorges Dam area, and the desirable safety investment scheme is determined from a set of candidate alternatives. The case study shows not only validity and feasibility of the decision-making approach but also the mechanism of shipping safety investment decision-making with consideration of the behavior characteristics of decision-makers such as reference dependence, risk appetite distortion, and loss aversion.

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Application of Fuzzy Logic in Investment-Intensive Decision Making

Handbook of Research on Emerging Applications of Fuzzy Algebraic Structures - Advances in Computer and Electrical Engineering ◽

10.4018/978-1-7998-0190-0.ch021 ◽

2020 ◽

pp. 386-404

Author(s):

Prateek Pandey ◽

Shishir Kumar ◽

Sandeep Shrivastava

Keyword(s):

Decision Making ◽

Fuzzy Logic ◽

New Product Development ◽

Investment Decision ◽

High Stake ◽

Investment Decision Making ◽

High Investment ◽

Decision Making Processes ◽

Robust System ◽

Critical Process

Fuzzy logic has been serving the industry for decades by resolving the ambiguities that appear as a result of imprecise environment. High-stake decision-making processes require inputs from various stakeholders to incorporate. If the risk is high, as in the case of high investment decision making, a robust system of incorporating opinions from multiple stakeholders must be set in place in order to avoid any inconsistency or bad decisions. Fuzzy matrices and arithmetic can play a rescuer in such situations. In this chapter, the authors demonstrate a decision-making framework incorporating the use of fuzzy numbers and arithmetic to make critical decisions in strategic marketing and new product development. Forecasting in the domains of new products is an utmost complex and critical process because no relevant history is available owing to the product's ‘one-of-its-kind' nature. In such cases, computation via analogy is an interesting paradigm, which is also discussed in the chapter.

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A Study on How Investors Decide on Socially Responsible Investments: Classification of Investment Behavior According to Companies’ Environmental Activities

International Journal of Automation Technology ◽

10.20965/ijat.2014.p0677 ◽

2014 ◽

Vol 8 (5) ◽

pp. 677-687

Author(s):

Nariaki Nishino ◽

◽

Kaoru Kihara ◽

Kenju Akai ◽

Tomonori Honda ◽

...

Keyword(s):

Decision Making ◽

Prospect Theory ◽

Investment Decision ◽

Sustainable Production ◽

Socially Responsible ◽

Responsible Investment ◽

Investment Decision Making ◽

Socially Responsible Investments ◽

People’S Attitudes

Environmental problems must be solved urgently, and sustainable production activities are desired. This study focuses on environmental finance, which is a method of promoting sustainable corporation activities. Environmental finance allows socially responsible investment to directly contribute to corporate activities and sustainable production activities. To clarify the mechanism of eco-friendly investment decision making, 4,843 respondents took a questionnaire survey on investment decision making, based on the framework of prospect theory. The results showed that prospect theory did not always work for environment issues and that people’s attitudes when they decide on eco-friendly investments could be classified to four clusters.

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The Impact of Behavioural Finance on Investment Decision-making: A Study of Selected Investment Banks in Nigeria

Global Business Review ◽

10.1177/0972150919851388 ◽

2019 ◽

pp. 097215091985138

Author(s):

Olubunmi Edward Ogunlusi ◽

Olalekan Obademi

Keyword(s):

Decision Making ◽

Prospect Theory ◽

Significant Relationship ◽

Positive Impact ◽

Investment Decision ◽

Negative Relationship ◽

Investment Banks ◽

Behavioural Finance ◽

Investment Decision Making ◽

The Impact

In this study, the impact of behavioural finance on investment decision-making using a selected investment banks was investigated. A total of 200 questionnaire items were administered to the respondents of the four surveyed investment banks including Afrinvest West Africa Limited, Meristem Securities, Vetiva Capital and ARM Nigeria Limited, out of which 180 questionnaire items representing 90 per cent were retrieved. The data were analyzed using tables, percentages, correlation and multiple regression analysis. The overall empirical results provided evidence of a positive impact between behavioural finance and investment decision, supporting previous research and contributing to generalization. The other findings of the research are thus: there is a significant relationship between heuristics and individual investment decision; there is a significant relationship between prospect theory and individual investment decision; and lastly there is a strong and negative relationship between heuristics and investment decision. Similarly, the relationship between prospect theory and investment decision is negative and strong. Against the backdrop of the aforementioned findings and conclusion, the following recommendations are proposed to both the institutional and individual investors: investors should be enlightened on the fact that there are many behavioural factors which can affect their investment decision-making process and they should be made aware of these factors including heuristics and prospect theory.

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Behavioural Finance and Investment Decisions: Does Behavioral Bias Matter?

International Business Research ◽

10.5539/ibr.v13n11p65 ◽

2020 ◽

Vol 13 (11) ◽

pp. 65

Author(s):

Etse Nkukpornu ◽

Prince Gyimah ◽

Linda Sakyiwaa

Keyword(s):

Decision Making ◽

Prospect Theory ◽

Multiple Regression ◽

Developing Country ◽

Investment Decision ◽

Investment Decisions ◽

Descriptive Statistics ◽

Behavioral Bias ◽

Investment Decision Making ◽

Overconfidence Bias

This paper examines the nexus between behavioural bias and investment decisions in a developing country context. Specifically, this study tests the effect of four behavioural biases (overconfidence, regret, belief, and “snakebite”) on investment decisions. Descriptive statistics and inferential statistics including multiple regression are used to examine the behavioural biases-investment decisions nexus. The study reveals that the four bias have a significant positive and robust relationship with investment decision making. The result also shows that the "snakebite" effect contributes more to the decision making, followed by belief bias then regret bias. Overconfidence bias, however, contributes the least effect on investment decisions. Our contribution confirms the prospect theory and that behavioural bias influences investment decisions in the developing country perspective. 

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