The current literature on behavioral portfolio optimization with reference point updating assumes that the decision maker foresees how the reference point will evolve and thus solves a time-consistent problem formulation. Empirical findings on the other hand suggest that decision makers often...

We investigate reference point formation in a social network of multiple investors and study its impact on wealth growth and inequality under a framework of Prospect Theory. The reference point of each individual investor contains both personal and social components. Whereas the personal...

We introduce the concept of forward rank-dependent performance criteria, extending the original notion to forward criteria that incorporate probability distortions. A fundamental challenge is how to reconcile the time-consistent nature of forward performance criteria with the time-inconsistency...

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...

Any robo-advisor needs to decide on a framework to model the preferences of its investors over uncertain outcomes. As of today, most robo-advisors model their investors as mean-variance optimizers. While the mean-variance framework is intuitive and optimal investment strategies have been derived...

We study the evolution of the Arrow-Pratt measure of risk-tolerance in the framework of discrete-time predictable forward utility (or performance) processes. An agent starts with an initial utility function, which is then sequentially updated forward in time under the guidance of the martingale...

We study the economics of litigation with a particular focus on litigation finance. Based on an extensive data set covering civil lawsuits reported by U.S. Federal Courts since 1977, we first present a set of stylized empirical facts about lawsuits at the trial phase. Grounded in these insights,...

We study discrete-time predictable forward processes when trading times do not coincide with performance evaluation times in the binomial tree model for the financial market. The key step in the construction of these processes is to solve a linear functional equation of higher order associated...

We introduce a model for portfolio selection with an extendable investment universe where the agent faces a trade-off between exploiting existing and exploring for new investment opportunities. An agent with mean-variance preferences starts with an existing investment universe consisting of a...

We investigate a discrete-time mean-risk portfolio selection problem, where risk is measured by the conditional value-at-risk (CVaR). By embedding this time-inconsistent problem into a family of expected utility maximization problems with a piecewise linear utility function, we solve the problem...