This paper studies the Cass-Koopmans-Ramsey model of optimal economic growth in the presence of loss aversion and habit formation. The representative agent's preferences for consumption can be gradually varied between the standard constant intertemporal elasticity of substitution (CIES) case and...

This research note examines the conditions which will induce a prospect theory type investor, whose reference level is set by 'playing it safe', to invest in a risky asset. The conditions indicate that this type of investor requires a large equity premium to invest in risky assets. However, once...