Decision Making Model under Uncertain and Risky Situations Based on Dynamic Reference Point: Evidences from Tehran Stock Exchange

According to prospect theory gains and losses are measured from a reference point. In this paper we attempted to examine the Reference Point Adaptation level and its effect on future selling decisions. For this purpose, the required data of all firms listed in the Tehran Stock Exchange were used. The required data were available for at least one year during the period from 2004 to 2013.The results showed that the two variables, including profit (loss) size and time in a profit (Loss) position, and their interaction with each other, are involved in formation and adaptation of reference point. So that when investors are in the profit point, the reference point is the adaptation to a new level, while when investors are in the loss area, the adaptability of the new reference point level is reduced. Also, a larger total loss size and a longer time in a losing position are related to a downward shift in the reference point. According to the results, considering two variables, profit (loss) size and time in a profit (Loss) position, and their interaction with each other, we can estimate the investor's reference point adaptation level and predict investor's decision to capitulate or hold stock.