Kahneman and Tversky’s Cumulative Prospect Theory (CPT) has proved to be better suited for representing risk preferences than von Neumann and Morgenstern’s Expected Utility Theory (EUT). We argue that neglecting this may explain to some extent why farmers do not contract crop insurance as...

We demonstrate that in simple 2×2 games (cumulative) prospect theory preferences can be (semi-)evolutionarily stable, in particular, a population of players with prospect theory preferences is stable against more rational players, i.e. players with a smaller degree of probability weighting. We...

Our research focuses on the relevance of the descriptive framework to the representation of decisional behavior aspects in financial instruments fair value models. This issue is analyzed in the case of stock options through three essays: The first paper gives rise to new behavioral factors...

Individuals' subjective life-expectancy, as elicited in large-scale surveys, shows underestimation of survival chances at young versus overestimation at old ages. These distorted perceptions of objective survival chances may cause young people to save too little and old people to accumulate too...

On average, ``young" people underestimate whereas ``old" people overestimate their chances to survive into the future. We adopt a Bayesian learning model of ambiguous survival beliefs which replicates these patterns. The model is em- bedded within a non-expected utility model of life-cycle...

Recent health policy reforms try to increase consumer choice. We use a laboratory experiment to analyze consumers’ tastes in typical contract attributes of health insurances and to investigate their relationship with individual risk preferences. First, subjects make consecutive insurance...

We evaluate European financial options under continuous cumulative prospect theory. Within this framework, it is possible to model investors’ attitude toward risk, which may be one of the possible causes of mispricing. We focus on probability risk attitudes and consider alternative probability...

The purpose of this paper is to demonstrate that Cumulative Prospect Theory is a serious alternative for Expected Utility Theory. It does not contradict Expected Utility, but includes it as a special example. A very useful example, because simple and yet very flexible, Expected Utility proved...

Cumulative Prospect Theory of Tversky and Kahneman (1992) is the modern version of Prospect Theory (Kahneman and Tversky (1979)) and is nowadays considered a valid alternative to the classical Expected Utility Theory. Cumulative Prospect theory implies Gain-Loss Separability, i.e. the separate...

We study the influence of risk and time preferences on trust and trustworthiness by conducting a field experiment in Vietnamese villages and by estimating the parameters of the Cumulative Prospect Theory and of quasi-hyperbolic time preferences. We find that while probability sensitivity or risk...