Benartzi, Shlomo; Thaler, Richard H. - 2021
The equity premium puzzle, first documented by Mehra and Prescott, refers to the empirical fact that stocks have … magnitude of the equity premium within the usual economics paradigm because the level of risk aversion necessary to justify such … a large premium is implausibly large. We offer a new explanation based on Kahneman and Tversky's 'prospect theory'. The …