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Financial Indices, Joint Ventures and Strategic Alliances Invalidate Cumulative Prospect Theory, Third-Generation Prospect Theory, Related Approaches and Intertemporal Asset Pricing Theory: HCI and Three New Decision Models

  • Michael I. C. Nwogugu
Chapter

Abstract

The Global Financial Crisis and stock market crashes that occurred in various countries during 2000–2015 have exposed significant weaknesses in economies, Stock Indices and “Regulatory Strategic Alliances” and Intertemporal Asset Pricing Theories.

Several researchers have also noted that PT/CPT/PT3 and related methods are invalid. Rieger and Bui (2011) developed alternative specifications for Prospect Theory (PT), and noted that in financial markets where the majority of participants are PT-maximizers, the classic PT value function (v) results in non-existence of equilibria, and the problem can be solved by using exponential value functions. Neilson and Stowe (2002) and Nwogugu (Appl Math Comput 179: 451–465, 2006a) critiqued CPT and found that CPT is an extension of Expected Utility Theory; and their results—and Nwogugu (2005), which is cited in Nwogugu (Appl Math Comput 179: 451–465, 2006a)—contradict findings in Bleichrodt et al. (2013) and Wakker (2010, Cambridge University Press). Schmidt (2003) critiqued CPT, and redefined reference-dependence in CPT. Woolford (Why South African boards construe elements of their regulatory obligations differently in respect of Enterprise Risk Management (ERM). Thesis for Doctor of Business Administration, Edinburgh Business School at Heriott Watt University, Scotland. http://www.ros.hw.ac.uk/bitstream/10399/2621/1/WoolfordG_1013_ebs.pdf, 2013) noted that corporate governance statutes (such as SOX in the US) require BODs to manage enterprise risk and BODs’ behavior towards risk is linked to their degree of regulatory compliance with such statutes.

Keywords

Stock Indices Strategic alliances Third-generation prospect theory Intertemporal asset pricing theory HCI Three new decision models 

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Authors and Affiliations

  • Michael I. C. Nwogugu
    • 1
  1. 1.EnuguNigeria

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