A genuine foundation for prospect theory

Schmidt, Ulrich and Zank, H. (2012) A genuine foundation for prospect theory Journal of Risk and Uncertainty, 45 (2). pp. 97-113.

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Abstract

In most models of (cumulative) prospect theory, reference dependence of preferences is imposed beforehand and the location of the reference point is determined exogenously. This paper presents principles that provide critical tests and foundations for prospect theory preferences without assuming reference-dependent preferences a priori. Instead, reference dependence is derived from behavior and the reference point arises endogenously.

Document Type: Article
Additional Information: Univ Manchester, Sch Social Sci, Manchester M13 9PL, Lancs, England. Univ Kiel, Dept Econ, D-24098 Kiel, Germany. Kiel Inst World Econ, D-24105 Kiel, Germany. Zank, H (reprint author), Univ Manchester, Sch Social Sci, Oxford Rd, Manchester M13 9PL, Lancs, England. horst.zank@manchester.ac.uk
Keywords: Diminishing sensitivity Prospect theory Reference dependence Reference point Utility reference-dependent preferences in-behavioral-economics linear utility-models loss aversion expected utility probability-preferences subjective-probability decision weights choice uncertainty
Research affiliation: Kiel University
OceanRep > The Future Ocean - Cluster of Excellence
Refereed: Yes
ISSN: 0895-5646
Projects: Future Ocean
Date Deposited: 14 May 2014 09:37
Last Modified: 01 Mar 2018 11:00
URI: http://eprints.uni-kiel.de/id/eprint/24242

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