IDEAS home Printed from https://ideas.repec.org/a/gam/jecnmx/v13y2025i1p5-d1577480.html

Application of Fuzzy Discount Factors in Behavioural Decision-Making for Financial Market Modelling

Author

Listed:
  • Joanna Siwek

    (Department of Artificial Intelligence, Faculty of Mathematics and Computer Science, Adam Mickiewicz University, Uniwersytetu Poznańskiego 4, 61-614 Poznań, Poland)

  • Patryk Żywica

    (Department of Artificial Intelligence, Faculty of Mathematics and Computer Science, Adam Mickiewicz University, Uniwersytetu Poznańskiego 4, 61-614 Poznań, Poland)

Abstract

This paper presents an innovative approach to financial market modelling by integrating fuzzy discount factors into the decision-making process, thereby reflecting the complexities of human behaviour. Traditional financial models often fail to account for market dynamics’ psychological factors. The proposed method utilizes fuzzy logic to encapsulate the uncertainty and subjective judgment inherent in financial decisions. By representing financial variables as fuzzy numbers, the model better simulates the way humans assess information and make decisions under uncertainty. The incorporation of fuzzy discount factors marks a significant shift from deterministic to a more realistic representation of financial markets, suitable for practical application. This methodology offers a nuanced investment strategy that balances theoretical rigour with real-world applicability, appealing to a broad spectrum of investors. The aim of the following paper is to introduce an alternative to price modelling with the use of fuzzy return rates, which results in some errors in the mathematical model. The solution has the form of introducing fuzzy discount factors (FDFs) that retain the advantages of the fuzzy approach (e.g., encompassing subjectivity and imprecision) while preserving the shape of the fuzzy number modelling a price.

Suggested Citation

  • Joanna Siwek & Patryk Żywica, 2025. "Application of Fuzzy Discount Factors in Behavioural Decision-Making for Financial Market Modelling," Econometrics, MDPI, vol. 13(1), pages 1-12, January.
    • Handle: RePEc:gam:jecnmx:v:13:y:2025:i:1:p:5-:d:1577480
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2225-1146/13/1/5/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2225-1146/13/1/5/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Piasecki Krzysztof & Siwek Joanna, 2015. "Behavioural Present Value Defined as Fuzzy Number – a New Approach," Folia Oeconomica Stetinensia, Sciendo, vol. 15(2), pages 27-41, December.
    2. Markowitz, Harry M, 1991. "Foundations of Portfolio Theory," Journal of Finance, American Finance Association, vol. 46(2), pages 469-477, June.
    3. Michał Dominik Stasiak & Żaneta Staszak, 2024. "Modelling and Forecasting Crude Oil Prices Using Trend Analysis in a Binary-Temporal Representation," Energies, MDPI, vol. 17(14), pages 1-13, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Su, Tong & Lin, Boqiang, 2024. "Reassessing the information transmission and pricing influence of Shanghai crude oil futures: A time-varying perspective," Energy Economics, Elsevier, vol. 140(C).
    2. Markowitz, Harry, 2014. "Mean–variance approximations to expected utility," European Journal of Operational Research, Elsevier, vol. 234(2), pages 346-355.
    3. Pradesha, Angga & Pauw, Karl & Siddig, Khalid H. A. & Thurlow, James, 2024. "Reimagining Sustainable Intensification: A Novel Application of Modern Portfolio Theory in a General Equilibrium Framework," 2024 Annual Meeting, July 28-30, New Orleans, LA 343793, Agricultural and Applied Economics Association.
    4. Elie Matta & Jean McGuire, 2008. "Too Risky to Hold? The Effect of Downside Risk, Accumulated Equity Wealth, and Firm Performance on CEO Equity Reduction," Organization Science, INFORMS, vol. 19(4), pages 567-580, August.
    5. Kristjan Liivamägi, 2015. "Investor Education and Portfolio Diversification on the Stock Market," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 7(1).
    6. Narayan, Paresh Kumar & Sharma, Susan Sunila, 2011. "New evidence on oil price and firm returns," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3253-3262.
    7. JinHyo Joseph Yun & EuiSeob Jeong & Xiaofei Zhao & Sung Deuk Hahm & KyungHun Kim, 2019. "Collective Intelligence: An Emerging World in Open Innovation," Sustainability, MDPI, vol. 11(16), pages 1-15, August.
    8. Henry Penikas, 2010. "Copula-Models in Foreign Exchange Risk-Management of a Bank," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 17(1), pages 62-87.
    9. Michał Dominik Stasiak & Żaneta Staszak & Marcin Stawarz, 2025. "Forecasting Crude Oil Prices Using the Binary RSI (bRSI) Indicator," Energies, MDPI, vol. 18(12), pages 1-14, June.
    10. Meng Li & Kezhi Liao & Yue Qi & Tongyang Liu, 2022. "Constructing Multiple‐Objective Portfolio Selection for Green Innovation and Dominating Green Innovation Indexes," Complexity, John Wiley & Sons, vol. 2022(1).
    11. Prakash, Arun J. & Chang, Chun-Hao & Pactwa, Therese E., 2003. "Selecting a portfolio with skewness: Recent evidence from US, European, and Latin American equity markets," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1375-1390, July.
    12. Riikka Sievänen & Hannu Rita & Bert Scholtens, 2017. "European Pension Funds and Sustainable Development: Trade‐Offs between Finance and Responsibility," Business Strategy and the Environment, Wiley Blackwell, vol. 26(7), pages 912-926, November.
    13. Muhammad Amjed Iqbal & Muhammad Rizwan & Azhar Abbas & Muhammad Sohail Amjad Makhdum & Rakhshanda Kousar & Muhammad Nazam & Abdus Samie & Nasir Nadeem, 2021. "A Quest for Livelihood Sustainability? Patterns, Motives and Determinants of Non-Farm Income Diversification among Agricultural Households in Punjab, Pakistan," Sustainability, MDPI, vol. 13(16), pages 1-14, August.
    14. Fengbin Zhu & Junfeng Li & Liangming Pan & Wenjie Wang & Fuli Feng & Chao Wang & Huanbo Luan & Tat-Seng Chua, 2025. "Towards Temporal-Aware Multi-Modal Retrieval Augmented Generation in Finance," Papers 2503.05185, arXiv.org, revised Aug 2025.
    15. Rémi Jézéquel & Dmitrii M. Ostrovskii & Pierre Gaillard, 2025. "Efficient and Near-Optimal Online Portfolio Selection," Post-Print hal-03787674, HAL.
    16. Jérôme Héricourt & Clément Nedoncelle, 2015. "Relative Real Exchange-Rate Volatility, Multi-Destination Firms and Trade: Micro Evidence and Aggregate Implications," Working Papers 2015-03, CEPII research center.
    17. Victor Olkhov, 2025. "Markowitz Variance May Vastly Undervalue or Overestimate Portfolio Variance and Risks," Papers 2507.21824, arXiv.org.
    18. Allen, D.E. & McAleer, M.J. & Powell, R.J. & Singh, A.K., 2015. "Down-side Risk Metrics as Portfolio Diversification Strategies across the GFC," Econometric Institute Research Papers EI2015-32, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    19. Zhang, Chang & Yao, Bo & Zhang, Chenjing, 2025. "Basic public service equalization and household risk investment behavior," Finance Research Letters, Elsevier, vol. 73(C).
    20. Briec, Walter & Kerstens, Kristiaan, 2010. "Portfolio selection in multidimensional general and partial moment space," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 636-656, April.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecnmx:v:13:y:2025:i:1:p:5-:d:1577480. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager The email address of this maintainer does not seem to be valid anymore. Please ask MDPI Indexing Manager to update the entry or send us the correct address (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.