Risk psychology and decision-making behavior of traders (Prospect Theory test)

Prospect Theory basically describes how people evaluate profits and losses. This theory indicates that a person makes a certain choice, but does not expect a definite result. The present study predicts the causal relationships between the constructs of prospect theory including risk attitude, subjective accounting and overconfidence, and decision-making behaviour of traders resulting from mass behaviour, cognitive, and emotional bias. The statistical population is active traders in the capital market within the country and a standard questionnaire was used to collect data. The relevant analyzes were performed based on the Lineal Structural Relations approach after performing the reliability and validity tests of the sample data. The test results of the hypotheses showed that the structures of prospect theory have a significant effect on the decision-making behaviour of traders.