We study portfolio diversification in an experimental decision task, where asset returns depend on a draw from an ambiguous urn. Holding other information identical and controlling for the level of ambiguity, we find that labeling assets as being familiar or from the homeland of subjects...

In an experiment on a subjective claims problem we compare three unanimity bargaining procedures - the Demand, the Offer and the Exit variant - in terms of fairness and efficiency. To assess the fairness of the allocations obtained by these procedures, we evaluate them from a partial point of...

We extend the original form of Prospect Theory by Kahneman and Tversky from finite lotteries to arbitrary probability distributions, thus paving the way for applications in economics and finance. Moreover, we suggest a method how to incorporate a crucial step of the quot;editing phasequot; into...

Investors tend to hold losing stocks too long and sell winning stocks too soon, which is referred to as the disposition effect. Using the trading data from Estonian stock market as well as the laboratory experiments, we find that investment decisions depend on the current performance and the...

This paper illustrates the use of a statistical technique, finite mixture models, to fit the parameters in cumulative prospect theory. For a given decision, some individuals may adopt a gain frame, while others may adopt a loss frame. By using finite mixture models, the best fitting parameters...

We extend the original form of Prospect Theory by Kahneman and Tversky from finite lotteries to arbitrary probability distributions, thus paving the way for applications in economics and finance. Moreover, we suggest a method how to incorporate a crucial step of the “editing phase” into...

The main result reported here is a Stone type local limit theorem for perturbed random walks Zn = Sn + [xi]n when some slow variation conditions are imposed on [xi]n's.

A local version of the central limit theorem is established for normalized sums of dependent random variables when a global theorem is known and conditional distributions are sufficiently smooth. The proof uses ideas from Statistics, by representing the density as the integral of a score...

We find that in cumulative prospect theory (CPT) with a concave value function in gains, a lottery with finite expected value may have infinite subjective value. This problem does not occur in expected utility theory. The paradox occurs in particular in the setting and the parameter regime...