The consumption capital asset pricing model is the standard economic model used to capture stock market behavior. However, empirical tests have pointed out its inability to account quantitatively for the high average rate of return and volatility of stocks over time for plausible parameter...

This paper considers a model of reference-dependent utility in which the individual makes a conscious choice of her reference point for future consumption. The model incorporates the combination of loss aversion and anticipatory utility as competing forces in the determination of the optimal...

The prospect theory proposed by (Kahneman and Tversky, 1979) stated that people are risk-averse when faced with profits and risk-loving when faced with loss. Benartzi and Thaler (1995) combined the Myopic Loss Aversion and Mental Accounting in explaining the equity premium puzzle. Gneezy and...

We evaluate whether machine learning methods can better model excess portfolio returns compared to the standard regression-based strategies generally used in the finance and econometric literature. We examine 17 benchmark factor model specifications based on Expected Utility Theory and theory...

This study investigates reference-dependent choice with a stochastic, state-dependent reference point. The optimal reference-dependent solution equals the optimal consumption solution (no loss aversion) if the reference point is selected fully endogenously. Given that loss aversion is...

This paper attempts to bring some central insights from behavioural economics into the economics of climate change. In particular, it discusses (i) implications of prospect theory, the equity premium puzzle and time inconsistent preferences in the choice of discount rate used in climate change...

Previous studies of loss aversion in decisions under risk have led to mixed results. Losses appear to loom larger than gains in some settings, but not in others. The current paper clarifies these results by highlighting six experimental manipulations that tend to increase the likelihood of the...