According to prospect theory (Kahneman & Tversky, 1979), gains and losses are measured from current wealth, which serves as a reference point. We attempted to ascertain to what extent the reference point shifts following gains or losses. In questionnaire studies we asked subjects what stock...

A test of the CAPM is developed conditional on a prior belief about the correlation between the true market return and the proxy return used in the test. Consideration is given to the effect of the proxy's mismeasurement of the market return on the estimation of the market model. Failure to...

In this paper we analyze the Chilean Stock Market's efficiency level. The efficiency concept, relates financial asset prices, the outcome from investment decisions, with all the information available to economic agents in their rational economic decision making process. To corroborate the stock...

This study estimates liquidity premiums using the recently developed Liu (2006) measure within a multifactor capital asset pricing model (CAPM) including size premiums and a time varying parameter model for the West African emerging market of Nigeria. The evidence suggests that liquidity factors...

It is well-known that expected utility (EU) has empirical deficiencies. Prospect theory (PT) has developed as an alternative with more descriptive validity. However, PT’s full function had not yet been quantified in the health domain. This paper is the first to simultaneously measure utility...

This short paper shows that the Allais Paradox and the Common Ratio Effect regarded as classic examples of the violation of the Expected Utility Theory Axioms – may be easily explained by assuming that changes in wealth (i.e. gains and losses) are perceived in relative terms. The preference...

Prospect Theory (1979) and its Cumulative version (1992) argue for probability weighting to explain lottery choices. Decision Utility Theory presents an alternative solution, which makes no use of this concept. The new theory distinguishes decision and perception utility, postulates a double...

The aim of this paper is to introduce prospect theory in a game theoretic framework. We address the complexity of the weighting function by restricting the object of our analysis to a 2-player 2-strategy game, in order to derive some core results. We find that dominant and indifferent strategies...

A common finding in stated preference studies that measure the value of travel time (VTT) is that the measured VTT increases with the size of the time change considered, in conflict with standard neoclassical economic theory. We present a new test of a possible explanation for the phenomenon...