and risk aversion. Kahneman & Tversky suggest Prospect Theory (PT) and Cumulative Prospect Theory (CPT) as an alternative … development of Prospect Theory. Can these two apparently contradictory paradigms coexist? In deriving the CAPM, Sharpe, Lintner … paradigm to EU theory. They show that investors distort probabilities, make decisions based on change of wealth, exhibit loss …

. A standard explanation of the disposition effect refers to prospect theory and in particular to the asymmetric risk … aversion according to which investors are risk averse when faced with gains and risk-seeking when faced with losses. We show … that for reasonable parameter values the disposition effect can however not be explained by the prospect theory as proposed …

We argue that the equity premium puzzle stems from a mismatch of applying mental accounting to experiments on risk … consistently in both areas the degrees of risk aversions obtained coincide and the equity premium puzzle is gone. …

assumptions of risk neutrality or perfect capital markets. However in most situations, corporate executives face incomplete … investment opportunities are not spanned by those of existing assets. The present paper examines the impact of managerial risk … aversion on investment decisions when the manager is exposed to idiosyncratic risk and faces the risk of a control challenge …

assumptions of risk neutrality or perfect capital markets. Although the assumptions of risk neutrality or market completeness are … face incomplete markets. In this paper we extend the real options approach to incorporate risk aversion for a general class … of utility functions. We show that risk aversion increases the option value of waiting and leads to a significant erosion …

state of the economy. We find that Knightian pessimism generates substan-tial First Order Risk Aversion (FORA) sects that … findings show that realistic amounts of both pessimism and standard risk aversion yield substantial equity premia and low …

The paper shows that financial market equilibria need not exist if agents possess cumulative prospect theory preferences …

This paper investigates model risk issues in the context of mean-variance portfolio selection. We analytically and …, we perform simulations leading to the conclusion that, under classical estimation, model risk bias dominates estimation … risk bias. Finally, we suggest a diagnostic tool to warnthe analyst of the presence of extreme returns that have an …

rebalancing, prospect theory with a fixed reference point, or the justification hypothesis explain the disposition effect. …