Magnitude Effect on Investment Decisions

Authors

Abstract

Risk and time preferences are essential factors that help to understand the dynamics of human behavior for decision-making. This study aimed to replicate decision-making based on the functional forms derived from the Prospectus Theory in a sample of Brazilian university students with an in-depth analysis with 110 questions (resulting in 2,420 observations), estimating the parameters of risk and time preferences by the maximum likelihood method. We use the model suggested by Harrison, (2008) and Andersen et al. (2008), with the SMPL (Switching Multiple Price Lists), with the theory of hyperbolic discount and the maximum likelihood function. The results showed that the respondents present an asymmetric behavior concerning gains and losses. It was also possible to observe that the discount rate found (daily) in the experiment corresponds to an annual discount rate of 44.0%, considerably high, a result that can be attributed to the so-called 'magnitude effect' in investments.

Author Biographies

Paulo Victor Cunha Porto, Pontifícia Universidade Católica do Rio de Janeiro

Pesquisador Independente do Núcleo de Pesquisa da PUC-RIO, Pontifícia Universidade Católica do Rio de Janeiro, Rio de Janeiro, RJ, Brasil.

Marcelo Cabús Klotzle, Pontifícia Universidade Católica do Rio de Janeiro

Professor Associado do IAG da PUC-RIO, Pontifícia Universidade Católica do Rio de Janeiro, Rio de Janeiro, RJ, Brasil.

Antonio Carlos Figueiredo Pinto, Pontifícia Universidade Católica do Rio de Janeiro

Professor Associado do IAG da PUC-RIO, Pontifícia Universidade Católica do Rio de Janeiro, Rio de Janeiro, RJ, Brasil.

Paulo Vitor Jordão da Gama Silva, Universidade do Grande Rio e Universidade do Estado do Rio de Janeiro

Professor do PPGA da UNIGRANRIO e Professor Adjunto da UERJ, Universidade do Estado do Rio de Janeiro, Rio de Janeiro, RJ, Brasil.

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Published

2024-09-11

How to Cite

PORTO, P. V. C.; KLOTZLE, M. C.; PINTO, A. C. F.; SILVA, P. V. J. da G. Magnitude Effect on Investment Decisions. Nova Economia, [S. l.], v. 34, n. 1, 2024. Disponível em: https://revistas.face.ufmg.br/index.php/novaeconomia/article/view/8203. Acesso em: 19 dec. 2024.

Issue

Vol. 34 No. 1 (2024): Revista Nova Economia

Section

Regular Issue

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Copyright (c) 2024 Paulo Victor Cunha Porto, Marcelo Cabús Klotzle, Antonio Carlos Figueiredo Pinto, Paulo Vitor Jordão da Gama Silva

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