Levy, Haim; Levy, Moshe - In: Journal of Risk and Uncertainty 25 (2002) 3, pp. 265-90
This paper analyzes two issues: (a) the effect of decision-weights on risk premium, and (b) whether risk-aversion characterizes most investors. We theoretically show that cumulative prospect theory decision-weights systematically increase Arrow's (1965) risk premium, and may induce a positive...