Abstract:This paper mainly studies the influence of venture entrepreneurs with the two irrational behaviors of overconfidence and loss aversion preference on venture capital investment of venture firms, and establishes a venture capital contract model combining overconfidence and loss aversion preference. The study reveals that when overconfidence and loss aversion preference are taken into account, the effort level of venture entrepreneurs, the benefit sharing rate, and the optimal reward function of venture entrepreneurs and venture capitalists all increase as the overconfidence increases, and decrease as the loss aversion preference increases. When the degree of loss aversion is less than a certain critical value, the expected return function of venture entrepreneurs and venture capitalists considering both overconfidence and loss aversion preference will be higher than the expected return function when they are completely in their rational state. Conversely, when the degree of loss aversion is greater than a certain critical value, the expected return function will be higher than that in the completely rational state. The expected return function of venture entrepreneurs and venture capitalists will be lower than the expected return function when they are in their perfectly rational state.