We formulate and carry out an analytical treatment of a single-period portfolio choice model featuring a reference point in wealth, S-shaped utility (value) functions with loss aversion, and probability weighting under Kahneman and Tversky's cumulative prospect theory (CPT). We introduce a new...

We propose a rank-dependent portfolio choice model in continuous time that captures the role in decision making of three emotions: hope, fear and aspirations. Hope and fear are modeled through an inverse-S shaped probability weighting function and aspirations through a probabilistic constraint....

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...

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...