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Prospect theory in the field: Revealed preferences from mutual fund flows

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  • Han, Bing
  • Sui, Pengfei
  • Yang, Wenhao

Abstract

Using mutual fund flows, we evaluate prospect theory with choice outcomes in the market. We provide strong support for prospect theory: under a standard set of parameters, funds whose past returns generate higher prospect theory value attract significantly larger future flows; we also find corroborative evidence using account-level data. Taking a revealed preference approach, we estimate the prospect theory parameters through a discrete choice model and find that our field-based estimates align well with previous experiment-based estimates. Moreover, we show that prospect theory offers a new framework for understanding flows, as it has explanatory power beyond existing drivers.

Suggested Citation

  • Han, Bing & Sui, Pengfei & Yang, Wenhao, 2026. "Prospect theory in the field: Revealed preferences from mutual fund flows," Journal of Financial Economics, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:jfinec:v:176:y:2026:i:c:s0304405x25002296
    DOI: 10.1016/j.jfineco.2025.104221
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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