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Two recently published studies argue that conventional parameterizations of cumulative prospect theory (CPT) fail to resolve the St. Petersburg Paradox. Yet as a descriptive theory CPT is not intended to account for the local representativeness effect, which is known to induce 'alternation bias'...
Persistent link: https://www.econbiz.de/10010954515
We report an experiment in which subjects are not indifferent between real-money lotteries implemented with randomization devices that are equivalent under the Reduction Axiom. Instead, choice behavior is consistent with subjective distortion of conditional probability, and this persists in...
Persistent link: https://www.econbiz.de/10011041611
Conventional parameterizations of cumulative prospect theory do not explain the St. Petersburg paradox. To do so, the power coefficient of an individual's utility function must be lower than the power coefficient of an individual's probability weighting function.
Persistent link: https://www.econbiz.de/10005146533
According to the harmonic sequence paradox (Blavatskyy 2006), an expected utility decision maker's willingness-to-pay for a gamble whose expected payoffs evolve according to the harmonic series is finite if and only if his marginal utility of additional income becomes zero for rather low payoff...
Persistent link: https://www.econbiz.de/10009216280
According to the harmonic sequence paradox (Blavatskyy 2006), an expected utility decision maker's willingness to pay for a gamble whose expected payoffs evolve according to the harmonic series is finite if and only if his marginal utility of additional income becomes eventually zero. Since the...
Persistent link: https://www.econbiz.de/10008562411
This paper develops a utility model for evaluating lotteries. In estimating utility, risk averse people use an asymmetric loss function. Expected utility is seen as a special case that is a good approximation in some cases. The model resolves several paradoxes and makes easily falsifiable...
Persistent link: https://www.econbiz.de/10005118544
This paper develops a utility model for evaluating lotteries. In estimating utility, risk averse people use an asymmetric loss function. Expected utility is seen as a special case that is a good approximation of the general case in some cases. The model resolves several paradoxes and makes...
Persistent link: https://www.econbiz.de/10005118587
According to disposition effect theory, people hold losing investments too long. However, many investors eventually sell at a loss, and little is known about which psychological factors contribute to these capitulation decisions. This study integrates prospect theory, utility maximization...
Persistent link: https://www.econbiz.de/10005504910
This paper presents new evidence on the distribution of risk attitudes in the population, using a novel set of survey questions and a representative sample of roughly 22,000 individuals living in Germany. Using a question that asks about willingness to take risks in general, on an 11-point...
Persistent link: https://www.econbiz.de/10005432540
This paper presents new evidence on the distribution of risk attitudes in the population, using a novel set of survey questions and a representative sample of roughly 22,000 individuals living in Germany. Using a question that asks about willingness to take risks in general, on an 11-point...
Persistent link: https://www.econbiz.de/10005432546