This study extends the literature on portfolio choice under prospect theory preferences by introducing a two-period life cycle model, where the household decides on optimal consumption and investment in a portfolio with one risk-free and one risky asset. The optimal solution depends primarily on...

We study the asset allocation of an investor with prospect theory (PT) preferences. First, we solve analytically the two-asset problem of the PT investor for one risk-free and one risky asset and find that loss aversion and the reference return affect differently less ambitious investors and...

This paper bridges the financial market and the marriage market using a reference-dependent mechanism. Male-biased sex ratios induce families with sons to hold more risky assets, since competitive marital payment in a tight market raises the reference level of marriage expenditure for such...

In this paper we analyze the two-period consumption-investment decision of a household with prospect theory preferences and an endogenous second period reference level which captures habit persistence in consumption and in the current consumption reference level. In particular, we examine three...