We study a very general setting, and propose a procedure for estimating the critical values of the extended Kolmogorov-Smirnov tests of First and Second Order Stochastic Dominance due to McFadden (1989) in the general k-prospect case. We allow for the observations to be generally serially...

How does risk tolerance vary with stake size? This important question cannot be adequately answered if framing effects, nonlinear probability weighting, and heterogeneity of preference types are neglected. We show that, contrary to gains, no coherent change in relative risk aversion is observed...

When valuing risky prospects, people tend to overweight small probabilities and to underweight large probabilities. Nonlinear probability weighting has proven to be a robust empirical phenomenon and has been integrated in decision models, such as cumulative prospect theory. Based on a laboratory...

We develop a conceptual model of entrepreneurial exit which includes exit through liquidation and firm sale for both firms in financial distress and firms performing well. This represents four distinct exit routes. In developing the model, we complement the prevailing theoretical framework of...

An extensive literature relating patients’ expectations to treatment outcomes has not addressed the determinants of these expectations. We argue that treatment history is part of a reference point that influences patients’ expectations of how effective further treatment might be, thus...

We extend the original form of Prospect Theory by Kahneman and Tversky from finite lotteries to arbitrary probability distributions, thus paving the way for applications in economics and finance. Moreover, we suggest a method how to incorporate a crucial step of the “editing phase” into...

|When international relations theorists use the concept of risk aversion, they usually cite the economics conception involving concave utility functions. However, concavity is meaningful only when the goal is measurable on an interval scale. International decisions are usually not of this type,...

This article extends the theory of corporate risk management to encompass highly dynamic risks. Taking Viscusi'�s (1989) prospective reference from the context of individual decision making and applying it to a corporate context we propose a theory of how corporations process new information....

Purpose – The paper aims to investigate the role of uncertainty avoidance (UA) as a moderator of Prospect Theory’s reflection effect (i.e. the simultaneous choice of a sure gain and a risky loss). We expect that higher-UA consumers, seeking certainty, will shun risk across both gains and...

In his review of 30 years of research in Prospect Theory, Barberis (2013) notes that support for Prospect Theory had come mainly from the laboratory. In this paper, I write about a recurring phenomenon in real life that is consistent with Prospect Theory predictions in decision-making loss...