In this paper we analyze how changes in inverse S-shaped probability weighting influence optimal portfolio choice in a rank-dependent utility model. We derive sufficient conditions for the existence of an optimal solution of the investment problem, and then define the notion of a more inverse...

We obtain closed-form solutions to a dynamic pricing problem in which a capacity provider determines the price of a product and customers' willingness-to-pay follows a specific family of distributions. This family of distributions not only includes the exponential distribution as a special case...

We consider a casino gambling model with an indefinite end date and gamblers endowed with cumulative prospect theory preferences. We study the optimal strategies of a pre-committed gambler, who commits her future selves to the strategy she sets up today, and of a naive gambler, who is unaware of...

We propose a coherent inference model that is obtained by distorting the prior density in Bayes' rule and replacing the likelihood with a so-called pseudo-likelihood. This model includes the existing non-Bayesian inference models as special cases and implies new models of base-rate neglect and...

In a new scheme for hedge fund managerial compensation known as the first-loss scheme, a fund manager uses her investment in the fund to cover any fund losses first; by contrast, in the traditional scheme currently used in most U.S. funds, the manager does not cover investors' losses in the...

We propose the first discrete-time infinite-horizon dynamic formulation of the financial index tracking problem under both return-based tracking error and value-based tracking error. The formulation overcomes the limitations of existing models by incorporating the intertemporal dynamics of...

We study a dynamic portfolio selection problem in which an agent trades a stock and a risk-free asset with the objective of maximizing the rank-dependent utility of her wealth at the terminal time of the investment horizon. Due to time inconsistency, we consider three types of agents,...

This document contains supplementary materials to "Optimal Exit Time from Casino Gambling: Strategies of Pre-committed and Naive Gamblers" by X.D. He, S. Hu, J. Obloj, and X.Y. Zhou.The paper to which these supplementary materials apply will appear in the SIAM Journal on Control and Optimization...

We study multi-period equilibrium asset pricing in an economy with Epstein-Zin (EZ-) agents whose preferences for consumption are represented by recursive utility and with loss averse (LA-) agents who derive additional utility of gains and losses and are averse to losses. We propose an...

Experimental studies show that people's risk preferences depend non-linearly on probabilities, but relatively little is known about how probability weighting influences investment decisions. In this paper we analyze the portfolio choice problem of investors who maximize rank-dependent utility in...