Magnitude Effect on Investment Decisions

Porto, Paulo Victor Cunha; Klotzle, Marcelo Cabus; Pinto, Antônio Carlos Figueiredo; Silva, Paulo Vitor Jordão da Gama

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Artigo original • Nova econ. 34 (01) • Jan-Mar 2024 • https://doi.org/10.1590/0103-6351/8203 copy

Magnitude Effect on Investment Decisions

Authorship SCIMAGO INSTITUTIONS RANKINGS

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.

Keywords:
Magnitude Effect; Behavioral Finance; Prospect Theory

Gênero
Masculino	6	27%
Feminino	16	73%
Total		100%
Idade
21 - 35	19	86,36%
36 - 50	1	4,55%
51 - 65	1	4,55%
65 ou mais	1	4,55%
Total	22	100%

Parâmetro	Estimativa	Desvio padrão
Função peso (α)	0,646	0,158
Aversão ao Risco (σ)	0,392	0,026
Aversão a perda (λ)	1,489	0,268
Taxa de desconto (δ)	0,001	0,000
Viés do presente (β)	1.043	0,044
Teste	Estatística do teste	P-Valor
$H_{0} : α = 1$	4,08	0,000
$H_{0} : σ = 1$	15,12	0,000
$H_{0} : λ = 1$	5,56	0,000
$H_{0} : δ = {0,078}^{(20)}$	5,06	0,000
$H_{0} : β = 1$	23,80	0,000

Autores	$α$	$σ$	$λ$
Tversky; Kahneman (1992TVERSKY, A.; KAHNEMAN, D. Advances in Prospect-Theory. Cumulative Representation of Uncertainty. Journal of Risk and Uncertainty, 5(4), p. 297-323, 1992.)	0,61	0,88	2,25
Tu (2005TU, Q. Empirical Analysis of Time Preferences and Risk Aversion. Tilburg University: CentER, Center for Economic Research, 2005.)	1,00	0,68	3,20
Harrison; Rutström (2009HARRISON, G. W.; RUTSTRÖM, E. E. Expected Utility Theory and Prospect Theory: One Wedding and a Decent Funeral. Experimental Economics, v. 12, n. 2, p. 133-158, 2009.)	0,91	0,71	1,38
Nguyen; Leung (2009)	0,49	0,59	1,20
*Booij et al.* (2010**BOOIJ, A. S.; PRAAG, B. M. S. V.; KUILEN, G. V. A Parametric Analysis of Prospect Theory’s Functionals for the General Population. Theory and Decision, v. 68, n. (1-2), p. 115-148, 2010.)	0,62	0,86	1,58
Nguyen (2010NGUYEN, Q.; LEUNG, P. How Nurture can Shape Preferences: An Experimental Study on Risk Preferences of Vietnamese Fishers. Environment and Development Economics, v. 15, n. 5, p. 609-631, 2010.)	0,76	0,72	2,06
*Tanaka et al.* (2010**TANAKA, T.; CAMERER, C. F.; NGUYEN, Q. Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam. American Economic Review, v. 100, n. 1, p. 557-571, 2010.)	0,74	0,61	2,63
Nguyen (2011NGUYEN, Q. Does nurture matter: Theory and Experimental Investigation on the Effect of Working Environment on Risk and Time Preferences. Journal of Risk and Uncertainty, v. 43, n. 3, p. 245-270, 2011.)	0,96	1,01	3,26
Liu (2013LIU, E. M. Time to Change What to Sow: Risk Preferences and Technology Adoption Decisions of Cotton Farmers in China. Review of Economics and Statistics, v. 95, n. 4, p. 1.386-1.403, 2013.)	0,69	0,48	3,47
*Attema et al.* (2013**ATTEMA, A. E.; BROUWER, W. B. F.; L’HARIDON, O. Prospect Theory in the Health Domain: A Quantitative Assessment. Journal of Health Economics, v. 32, n. 6, p. 1057-1065, 2013.)	0,46	0,25	1,18
Liebenehm; Waibel (2014LIEBENEHM, S.; WAIBEL, H. Simultaneous Estimation of Risk and Time Preferences among Small-scale Cattle Farmers in West Africa. American Journal of Agricultural Economics, v. 96, n. 5, p. 1-19, 2014.)	0,13	0,11	1,35
Mínimo	0,13	0,11	1,18
Máximo	1,00	1,01	3,47

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[TFN1] Fonte: Elaboração própria.