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

Bing Han; Pengfei Sui; Wenhao Yang

doi:10.1016/j.jfineco.2025.104221

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

Bing Han^1,2; Pengfei Sui³; Wenhao Yang⁴

¹ University of Toronto · ² Tsinghua University · ³ Chinese University of Hong Kong, Shenzhen · ⁴ University of North Carolina at Charlotte

Journal of Financial Economics 2026 open access

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.

DOI: 10.1016/j.jfineco.2025.104221
Volume: 176
Pages: 104221
Language: en
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