According to disposition effect theory, people hold losing investments too long. However, many investors eventually sell at a loss, and little is known about which psychological factors contribute to these capitulation decisions. This study integrates prospect theory, utility maximization...

The budget constraint requires that, eventually, consumption must adjust fully to any permanent shock to income. Intuition suggests that, knowing this, optimizing agents will fully adjust their spending immediately upon experiencing a permanent shock. However, this paper shows that if consumers...

Most decisions concerning (self-)insurance and self-protection have to be taken in situations in which a) the effort exerted precedes the moment uncertainty realises, and b) the probabilities of future states of the world are not perfectly known. By integrating these two characteristics in a...

We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits. The availability of such means-tested payments creates an incentive to cash out...

This study analyses the relation between perceived health status and intertemporal choice. We use data from experiments with real monetary rewards conduEted among students in South Africa to estimate risk and time preferences. These experimental data, based on muitiple price lists developed by...

Many empirical studies on intertemporal choice report preference reversals in the sensethat a preference between a small reward to be received soon and a larger reward to bereceived later reverses as both rewards are equally delayed. Such preference reversals arecommonly interpreted as...

We propose a novel utility representation for preferences over risky timed outcomes. The weighted temporal utility model generalizes many well known utility functions for intertemporal decision making under risk. A decision maker with a weighted temporal utility function can have time consistent...

We establish a convergence theorem that shows that discrete-time recursive utility, as developed by Kreps and Porteus (1978), converges to stochastic differential utility, as introduced by Duffie and Epstein (1992), in the continuous-time limit of vanishing grid size.

This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors’ information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the...

We propose and axiomatically characterize dynamically consistent update rules for decision making under ambiguity. These rules apply to the preferences with multiple priors of Gilboa and Schmeidler (1989), and are the first, for any model of preferences over acts, to be able to reconcile typical...