Among the most popular models for decision under risk and uncertainty are the rank-dependent models, introduced by Quiggin and Schmeidler.Central concepts in these models are rank-dependence and comonotonicity.It has been suggested in the literature that these concepts are technical tools that...

This paper presents a model for the "gambling effect," i.e., the effect that risky gambles are evaluated differently than riskless outcomes due to an intrinsic utility (or disutility) of gambling.The model turns out to violate stochastic dominance and therefore its primary applications will be...

Prospect theory (PT) is the dominant descriptive theory of decision making under risk today. For the modeling of choices, PT relies on a psychologically founded separation of risk attitudes into attitudes towards outcomes, captured in a value function; and attitudes towards probabilities,...

Whereas exchange asymmetries for goods are well known, we provide a first incentivized test of exchange asymmetries for bads (i.e., items yielding a negative utility). On the one hand, prospect theory predicts an endowment effect for goods and bads, on the other hand, attention-based theories...

The standard model of optimal deterrence predicts that the probability of wrongful conviction of the innocent is, at the margin, as detrimental to deterrence as the probability of wrongful acquittal of guilty individuals. We extend the model in several directions: using expected utility as well...

Purpose – This study investigates the implications of the cumulative prospect theory in the context of US bank acquisitions, with particular emphasis on its probability weighting component. Specifically, we examine whether gambling attitudes matter in US bank takeover decisions. The evidence...

In Rawls’ (1971) influential social contract approach to distributive justice, the fair income distribution is the one that an individual would choose behind a veil of ignorance. Harsanyi (1953, 1955, 1975) treats this situation as a decision under risk and arrives at utilitarianism using...

Individual risk preferences can be identified by using decision models with tuned parameters that maximally fit a set of risky choices made by a decision maker. A goal of this model fitting procedure is to isolate parameters that correspond to stable risk preferences. These preferences can be...

Since the enactment of Pension Protection Act of 2006, lifecycle funds that reduce exposure to stocks with age have rapidly replaced money market funds as the most commonly nominated default investment options for participant-directed retirement plans. We examine their appropriateness in meeting...

Prospect theory suggests that risk seeking can occur when investors face losses and thus an S-shaped utility function can be useful in explaining investor behavior. Using stochastic dominance procedures, Post and Levy (2015) find evidence of reverse S-shaped utility functions. This is consistent...