Analysis of Expected Utility Theory and Prospect Theory

The decisions making in the uncertainty finance are based on Expected Utility Theory and Prospect Theory are primary theories of researching uncertainty decisions in financial domain.According to Expected Utility Theory,individual financial investment decisions-making to the uncertainties in finance result from the ultimate wealth owned and its probability,and the individual must feature rational expection,risk aversion and maximum value of utility.Prospect Theory divides the same decision into editing phase and evaluating phase.That is to say,individual financial investment decisions-making start with collecting and settling lots of prospects,and follow to chose the maximum value prospect through evaluating each edited prospects based on two subjective standards of value function v(·)and decision weighting function π(·).