Within the prospect theory the paper examines production and hedging decisions of a competitive firm under price … uncertainty. We consider the prospect theory for the firm's utility function in the two moment model known as (mu … theory, mean-variance model, price uncertainty …

The prospect theory is one of the most popular decision-making theories. It is based on the S-shaped utility function …, unlike the von Neumann and Morgenstern (NM) theory, which is based on the concave utility function. The S-shape brings in … mathematical challenges: simple extensions and generalizations of NM theory into the prospect theory cannot be frequently achieved …

This note examines the behavior of a competitive firm that faces joint price and inflation risk. Given that the price … risk is negatively correlated with the inflation risk in the sense of expectation dependence, the firm optimally opts for … inflation risk, it is not the case when the inflation risk prevails. In contrast to the conventional wisdom, forward hedging …

and inflation risk. Both sources of uncertainty make it difficult to stabilize consumption over time. However, investors …

' foreign capital stocks in 22 countries between 1994 and 2003. Estimating elasticities, we find that while domestic wages do …