The appendix can be found at: "http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2005194" http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2005194 We consider choice over uncertain, monetary payoffs and study a general class of preferences. These preferences favor diversification, except...

We consider dynamic sublinear expectations (i.e., time-consistent coherent risk measures) whose scenario sets consist of singular measures corresponding to a general form of volatility uncertainty. We derive a càdlàg nonlinear martingale which is also the value process of a superhedging...

This paper argues that observations of non-stationary choice behavior need not necessarily imply specific properties of the individual's discount function. As we show, the observed quot;anomaliesquot; in intertemporal choice can alternatively be explained by an individual's perception of the...

This study investigates reference-dependent choice with a stochastic, state-dependent reference point. The optimal reference-dependent solution equals the optimal consumption solution (no loss aversion) if the reference point is selected fully endogenously. Given that loss aversion is...

We analyze the risk levels chosen by agents who have private information regarding their quality, and whose performance will be judged and rewarded by outsiders. Assume that risk choice is observable. Even risk-neutral agents will choose risk strategically to enhance their expected reputation....

The paper first shows that financial market equilibria need not to exist if agents possess cumulative prospect theory preferences with piecewise-power value functions. This is due to the boundary behavior of the cumulative prospect theory value function, which might cause an infinite...

Natural catastrophes attract regularly the attention of media and have become a source of public concern. From a financial viewpoint, natural catastrophes represent idiosyncratic risks, diversifiable at the world level. But for reasons analyzed in this paper reinsurance markets are unable to...

We study how the framework of classical game theory changes when the preferences of the players are described by Prospect Theory instead of Expected Utility Theory. Specifically, we study the influence of framing effect and probability weighting on the existence and specific structure of Nash...

In this paper we present a two period model, where the agent's preferences are described by prospect theory as proposed by Kahneman and Tversky. We solve for the agent's portfolio decision. Our findings are that the changes in portfolio weights depend crucially on the reference point and the...

A new class of risk measures called cash sub-additive risk measures is introduced to assess the risk of future financial, nonfinancial and insurance positions. The debated cash additive axiom is relaxed into the cash sub-additive axiom to preserve the original difference between the numeraire of...