An Experimental Study Of Individual Financial Investment Behavior Based On Risk Aversion Paradox

The earliest issue of individual risk attitude can be traced back to the famous Expected Utility theory. However, the Expected Utility function depicts individual attitude toward risk with only one dimension, namely, the utility function of concave and convex. On the contrary, people’s attitude towards risk is not always disgust in reality and the utility function of a rational man is not always concave. Through a series of experiments, Scholars found out that people’s attitude,preference, behaviors and so on are not entirely rational, and their attitude towards risk and decision-making behavior often violate the axiomatic system of Expected Utility theory systematically. Prospect theory which was put forward by Kahneman and Tversky(1979) is the strongest challenge to the Expected Utility theory, which is the core of the behavioral finance theory. The concept of "risk aversion paradox" in the title is based on prospect theory.The most important innovation point of the behavioral finance is the individual irrational selection, which is characterized by a certain amount of investment behavioral biases in the securities market. Behavioral finance interprets individual attitude to risk from the perspective of reality. In addition, the specialty of the theory’s research method is introducing the experimental research methods into analysis framework. This thesis, using laboratory experiment method from the perspective of risk aversion paradox, attempts to design a series of experimental paradox to test whether the individual has biases in the process of making investment decision. All the experiments in this thesis are based on the economics experiment software Ztree(Fischbacher,2007), which was developed by the Zurich university in Switzerland. Furthermore, according to the experimental data, in order to find out the relationship between the obvious existence of investment behavior deviation and individual characteristic factors, we use the Logit model to find individual characteristic factors which can happen in the form of four behavior biases: policy rely, certainty effect, loss aversion and framing dependence. Finally, we attempt to put forward some useful suggestions for the design of financial product and the formulation of marketing strategy for the investment group.