We examine the combined effects of asymmetric taxation and limited liability on optimal risk taking of investors. Given an optimal risk level in the pre-tax case under full liability, loss-offset restrictions reduce, and limited liability enhances the incentives for taking risk. For every degree...

Loss aversion, risk aversion, and the probability weighting function (PWF) are three central concepts in explaining decisionmaking under risk. I examine interlinkages between these concepts in a model of decisionmaking that allows for loss averse/tolerant stochastic reference dependence and...

We consider income-source-dependent tax evasion and show that this is a generalization of the well-known endowment effect. We show that loss aversion, moral costs, mental accounting, and risk preferences play a key role in explaining key features of source-dependent tax evasion. We provide...

The paper develops an axiomatic framework for rational decision making. The von Neumann-Morgenstern axioms give rise to a richer risk attitude than that captured in the standard discounted expected utility model. I derive three models that permit a more comprehensive risk evaluation. These...

We introduce a simple, easy to implement instrument for jointly eliciting risk and ambiguity attitudes. Using this instrument, we structurally estimate a two-parameter model of preferences. Our findings indicate that ambiguity aversion is significantly overstated when risk neutrality is assumed....

Evidence from hypothetical scenarios strongly suggests the existence of a sunk cost bias, the tendency to ‘throw good money after bad money.’ However, the few studies using incentives are inconclusive. In addition, evidence on potential psychological channels underlying such a bias is...

We consider a simple, two period, consumption-savings model with future income uncertainty that examines the interplay of savings, precautionary savings, loss aversion, and risk. We provide the relevant theory, followed by empirical tests based on subject-specific choices, and the measurement of...

We test for skewness preferences in a large set of observational panel data on online poker games (n=4,450,585). Each observation refers to a choice between a safe option and a binary risk of winning or losing the game. Our setting offers a real-world choice situation with substantial incentives...

A group of decision makers simultaneously make contributions towards a green fund that reduces the future probability of a climate catastrophe. We derive the theoretical predictions of the effects on contributions arising from 'behavioral parameters' such as loss aversion and present-bias;...

Ambiguous prospects are ubiquitous in social and economic life, but the psychological foundations of behavior under ambiguity are still not well understood. One of the most robust empirical regularities is the strong correlation between attitudes towards ambiguity and compound risk which...