We conduct a controlled laboratory experiment in which subjects dynamically choose to allocate their portfolio between (i) a safe asset, (ii) a risky asset and (iii) a skewed asset with negative expected value (a bet ), in an environment where they can sometimes choose to acquire some...

Story-telling helps to define the human experience. Do people also use narratives to make sense of, and to act on, financial information? Three studies demonstrate that people's investment predictions and choices instead are by narrative thinking. Whereas neoclassical financial theory maintains...

We study the implications of various models of reference point formation on optimal decision making in the context of portfolio optimization under loss aversion. If the reference point is exogenously given, then the predictions of any such model crucially depend on the choice of the reference...

A sensitivity analysis of the impact of Cumulative Prospect Theory (CPT) parameters on a Mean/Risk efficient frontier is performed, through a simulation procedure, assuming a Multivariate Variance Gamma distribution for log-returns. The optimal investment problem for an agent with CPT...

According to the behavioral concept of myopic loss aversion (MLA), investors are more willing to take risks if they are less frequently informed about their portfolio performance. This prediction of MLA has been confirmed in various experimental studies and the conclusion has been drawn that...

This paper analyzes gender differences in the disposition effect in an experiment based on Weber and Camerer (1998). The results emphasize that female investors realize less capital losses, have significantly higher disposition effects and are more loss averse than men

Purpose - The current study aims to investigate the impacts of two behavioral biases, namely, loss aversion and overconfidence on the performance of US companies. First, the impact of loss aversion on the economic performance of companies was assessed. Second, the impact of overconfidence on...

We study risk taking on behalf of others, both with and without potential losses. A large-scale incentivized experiment is conducted with subjects randomly drawn from the Danish population. On average, decision makers take the same risks for other people as for themselves when losses are...

Prospect theory is arguably the most prominent alternative to expected utility theory. We study the investment or gambling behavior of a prospect theory decision maker who is aware of his time-inconsistency but lacks commitment. For the empirically relevant prospect theory specifications, we...

When prospect theory (PT) is applied in a dynamic context, the probability weighting component brings new challenges. We study PT agents facing optimal timing decisions and consider the impact of allowing them to follow randomized strategies. In a continuous-time model of gambling and optimal...