Decision-Making Analysis In Portfolio Selection

Uncertainty is all the time becoming more important within financial market, which makes financial activities filled with risks and fuzziness. In an uncertain environment, it appears fuzzy and vague nature when investors are making decisions. Investors make the final decision according to their judgments on information that affects the final profit and different preference. Obviously, psychological factors play an important part in decision. However, probability theory plays the main role in classical research field. Probability theory often used in analyzing randomicity, which needs full information. Besides, it's difficult for investors to know all information and scenario in uncertain market, and even if they did it, calculating is also complex. When the investors are making decisions, there is also a kind of subjective fuzziness, such as preference and description of objectives and so on. Fuzziness is different from random nature. In 1965, mathematician L.A.Zadeh put forward a concept of Fuzzy Sets which provided a useful tool for analysis.Avoiding investing risks efficiently and maximizing the benefit in uncertain environment is the most important for investors. So that, our main task in the paper is structuring efficient and useful portfolio selection using fuzzy mathematics. In decision course, decision maker define two types of function which is referred in the following passage according to his own preference, and then calculate with the model.With regard to the concept of fuzzy decision theory and base of portfolio selection theory, we structured three new models in this paper. Those are preference function, risk function and valuation model. We transfer a portfolio selection problem into a decision problem in fuzzy environment. They can provide the satisfied option. Diverse schemes have been developed and applied; yet, the overall prediction behavior of such system is questionable in real world conditions. In this article we propose a model for measuring the profit and risk decisions with a given standard (satisfy standard) or a set of standards they are designed to achieve. Then we select the best one from those that can meet the standard through valuation model. If the assumed market scenario turns out to be incorrect, the portfolio is guaranteed to meet the investor satisfy standard. Therefore, both of investor' preference and nature of asset are included. There are five chapters in the paper. First of all, we present the motivation, analysis methods and structure of the paper. Second, we review the literature on behavioral economics and portfolio selection. The model, which is presented in the third part, is based on the theory of BPT model and fuzzy decision-making theory. Then, we give a numerical example to illustrate the model. Finally, the results are presented and discussed.