English, Article edition: Towards multi-factor models of decision making and risk: A critique of Prospect Theory and related approaches, part III Michael Nwogugu

User activity

Share to:
 
Bookmark: http://trove.nla.gov.au/version/8700
Physical Description
  • article
Language
  • English

Edition details

Title
  • Towards multi-factor models of decision making and risk: A critique of Prospect Theory and related approaches, part III
Author
  • Michael Nwogugu
Physical Description
  • article
Notes
  • Purpose – The purposes of this article are to evaluate models of stock market risk developed by Robert Engle, and related models (ARCH, GARCH, VAR, etc.); to establish whether prospect theory, cumulative prospect theory, expected utility theory, and market-risk models (ARCH, GARCH, VAR, etc.) are related and have the same foundations. Design/​methodology/​approach – The author critiques existing academic work on risk, decision making, prospect theory, cumulative prospect theory, expected utility theory, VAR and other market-risk models (ARCH, GARCH, etc.) and analyzes the shortcomings of various measures of risk (standard deviation, VAR, etc.). Findings – Prospect theory, cumulative prospect theory, expected utility theory, and market-risk models are conceptually the same and do not account for many facets of risk and decision making. Risk and decision making are better quantified and modeled using a mix of situation-specific dynamic, quantitative, and qualitative factors. Belief systems (a new model developed by the author) can better account for the multi-dimensional characteristics of risk and decision making. The market-risk models developed by Engle and related models (ARCH, GARCH, VAR, etc.) are inaccurate, do not incorporate many factors inherent in stock markets and asset prices, and thus are not useful and accurate in many asset markets. Research limitations/​implications – Areas for further research include: development of dynamic market-risk models that incorporate asset-market psychology, liquidity, market size, frequency of trading, knowledge differences among market participants, and trading rules in each market; and further development of concepts in belief systems. Practical implications – Decision making and risk assessment are multi-criteria processes that typically require some processing of information, and thus cannot be defined accurately by rigid quantitative models. Existing market-risk models are inaccurate – many international banks, central banks, government agencies, and financial institutions use these models for risk management, capital allocation, portfolio management, and investments, and thus the international financial system may be compromised. Originality/​value – The critiques, ideas, and new theories in the article were all developed by the author. The issues discussed in the article are relevant to a multiplicity of situations and people in any case that requires decision making and risk assessment.
  • Artificial intelligence, Complexity theory, Decision making, Psychology
  • RePEc:eme:jrfpps:v:6:y:2005:i:3:p:267-274
Language
  • English
Contributed by
OAIster

Get this edition

  • Set up My libraries

    How do I set up "My libraries"?

    In order to set up a list of libraries that you have access to, you must first login or sign up. Then set up a personal list of libraries from your profile page by clicking on your user name at the top right of any screen.

  • All (1)
  • Unknown (1)
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.

User activity


e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this edition

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this version

Add a comment