The expected utility model captures the attitude toward risk exclusively through the marginal utility. Recognizing this limitation several models explicitly account for aversion to downside risk. This paper presents non-experimental evidence that this feature is empirically relevant in asset...

We use a calibrated life-cycle model with earnings risk and liquidity constraints to study the role of tax-deferred retirement accounts (TDAs) in life cycle savings behavior. We find that they promote higher wealth accumulation but not higher net savings. Consumption increases mostly during...

We examine the impact of heterogeneity in preferences on asset prices in a setting where agents have rank-dependent expected utility. Endogenous limits to risk sharing arise naturally, with the more risk averse agents choosing to exit the market for the risky asset. This leads to economically...

This paper explores the implications of the additive and endogenous habit formation preferences in the context of a life-cycle model of an investor who has stochastic uninsurable labor income. To solve the model, I analytically derive the habit - wealth feasibility constraints and show that they...

The proliferation of novel preference theories in financial economics is hampered by a lack of non-experimental evidence and by the theories' additional complexity which has not been shown to be critical in applications. In this paper I present arguments in support of preferences with rank...