Building on Prospect Theory, we apply the concept of loss aversion to the formation of inflation perceptions and test empirically for non-linearities in the inflation-perceptions relation for a panel of 10 Euro area countries. Specifically, under the assumption of loss aversion, inflation...

Purpose: The purpose of our paper is to analyze optimal purchasing strategies when a manufacturer can buy raw materials from a long-term contract supplier and a spot market under spot price uncertainty. Design/methodology/approach: This procurement model can be solved by using dynamic...

Based on the insights of Loewenstein's (1988) reference point model, we specify structural model for intertemporal choice that incorporates loss aversion and reference points. We consider four scenarios: Delay of gains, delay of losses, speed-up of gains, and speed-up of losses, using six years...

This study examines the predictive ability of various risk aversion indicators for future real economic activity (REA). Theoretically, the consumption capital asset pricing model and real business cycle model framework explain the role of the investor’s risk aversion. However, we show that...

We consider two semiparametric models for the weight function in a biased sample model. The object of our interest parametrizes the weight function, and it is either Euclidean or non Euclidean. One of the models discussed in this paper is motivated by the estimation the mixing distribution of...

In this paper we propose benchmark values for the coefficients of relative risk aversionand relative prudence on the basis of a binary choice model where the decision makerchooses between aggregating or disaggregating multiplicative risks. We relate ourresults to the decision maker's willingness...

We observe that the standard variant of Prospect Theory cannot describe very risk-averse choices in simple lotteries. This makes it diffcult to accommodate it with experimental data. Using an exponential value function can solve this problem and allows to cover the whole spectrum of risk-averse...

This study investigates loss aversion when the reference point is state-dependent.Using a state-dependent structure, prospects are more attractive if they depend positively on the reference point and are less attractive in case of negative dependence. In addition, the structure is neutral in the...

The disposition effect is the observation that investors hold winning stocks too long and sell losing stocks too early. A standard explanation of the disposition effect refers to prospect theory and in particular to the asymmetric risk aversion according to which investors are risk averse when...