We explore how the timings of compensation payment and contract termination are jointly and optimally determined in a continuous-time principal—agent model under the discretionary termination policy of investors (the principal) when the agent has loss—averse preferences. Our theoretical...

We present a new theory of decision under uncertainty: third-generation prospect theory (PT3). This retains the predictive power of previous versions of prospect theory, but extends that theory by allowing reference points to be uncertain while decision weights are specified in a rank-dependent...

When a risky decision involves both skill and chance, success or failure is a signal of the decision maker's skill. Adopting standard models from the career concerns literature, we show that a rational desire to avoid looking unskilled may help explain several anomalies associated with prospect...

This paper presents the results of an experiment that completely measures the utility function and probability weighting function for different positive and negative monetary outcomes, using a representative sample of N = 1935 from the general public. The results confirm earlier findings in the...

This paper presents the results of an experiment that completely measures the utility function and probability weighting function for different positive and negative monetary outcomes, using a representative sample of N = 1935 from the general public. The results confirm earlier findings in the...

In previous models of (cumulative) prospect theory reference-dependence of preferences is imposed beforehand and the location of the reference point is exogenously determined. This note provides a foundation of prospect theory, where reference-dependence is derived from preference conditions and...

Prenatal androgens have organizational effects on brain and endocrine system development, which may have a partial impact on economic decisions. Numerous studies have investigated the relationship between prenatal testosterone and financial risk taking, yet results remain inconclusive. We...

We correlate choice under risk in Holt-Laury lottery tasks for gains and losses with salivary testosterone, estradiol, progesterone, and cortisol, the use of hormonal contraceptives, menstrual cycle information as well as the digit ratio (2D:4D) in more than 200 subjects. Risk aversion is...

Prospect theory describes people as bounded rational decision maker. What sparked widespread discussion after its initial introduction in 1979 is today criticized for lack of applicability. I use the debate about whistleblowing laws to show that prospect theory may be applied prescriptively in...

We examine generational differences in risk-taking behavior by means of a laboratory experiment with monetary incentives. We estimate the parameterized models in the framework of cumulative prospect theory and examine the risk aversion, probability weightings and reference point adoption of...