The paper shows that financial market equilibria need not exist if agents possess cumulative prospect theory preferences with piecewise-power value functions. The reason is an infiniteshort-selling problem. But even when a short-sell constraint is added, non-existence can occur due to...

We conduct controlled experiments in order to analyze individual trading behavior. Our results suggest that investors measure their gains relative to their initial wealth, and that this reference point together with past stock price changes determine the portfolio choices. Subjects choose a...

We observe that the standard variant of Prospect Theory cannot describe very risk-averse choices in simple lotteries. This makes it diffcult to accommodate it with experimental data. Using an exponential value function can solve this problem and allows to cover the whole spectrum of risk-averse...

Prospect theory has found an increasing attention in many fields of economics. However, it has scarcely been addressed in a macroeconomic growth model. In an earlier paper we introduced prospect theory into a stochastic growth model. This paper focuses on linking the Euler equation induced by...

We demonstrate that in simple 2 X 2 games (cumulative) prospect theorypreferences can be evolutionarily stable, i.e. a population of players withprospect theory preferences can not be invaded by more rational players. Thisholds also if probability weighting is applied to the probabilities of...

We study how the framework of classical game theory changes whenthe preferences of the players are described by Prospect Theory (PT)and Cumulative Prospect Theory (CPT) instead of Expected UtilityTheory. Specically, we study the inuence of framing eects and probabilityweighting on the existence...