Experiment on individual investment decision making process

Abstract

This working paper reports an investigation into the decision making process of individual faced with a set of risky investment opportunities. An experiment was conducted on a set of students and the data generated from the experiment was analyzed. The analysis was done to infer about the criteria of choice used by the participants and the form of utility function that explains the observed behaviour. It was found that the pattern of choice was well explained by adjusted logarithmic function. It was also found that the risk perception of individuals was determined jointly by the variance and the skew ness of the return distribution.