Reference-dependent preferences have been well accepted in decision sciences, experimental economics, behavioral finance, and marketing. However, we still know very little about how decision makers form and update their reference points given a sequence of information. Our paper provides some...

Probability and time are integral dimensions of virtually any decision. To treat them together, we consider the prospect of receiving outcome <i>x</i> with a probability <i>p</i> at time <i>t</i>. We define risk and time distance, and show that if these two distances are traded off linearly, then preferences are...

We introduce a modification of the discounted utility model that accounts for both satiation and habit formation in intertemporal choice. Preferences depend on the satiation level and the habitual consumption level. These two state variables, together with the shape of the value function, drive...

We generalize and extend the second-order stochastic dominance condition for expected utility to cumulative prospect theory. The new definitions include preferences represented by S-shaped value functions, inverse S-shaped probability weighting functions, and loss aversion. The stochastic...

We consider a decision problem where a group of individuals evaluates multiattribute alternatives. We explore the minimal required agreements that are sufficient to specify the group utility function. A surprising result is that, under some conditions, a bilateral agreement among pairs of...

Financial professionals have a great deal of discretion concerning how to relay information about the risk of financial products to their clients. This paper introduces a new risk tool to communicate the risk of investment products, and it examines how different risk-presentation modes influence...

Prior studies have shown that individuals are averse to ambiguity in probability. Many decisions are, however, made in market settings where an individual's decision is influenced by decisions of others participating in the market. In this paper, we extend the previous research to evaluate the...

This study examined how weights in multiattribute utility measurement change when objectives are split into more detailed levels. Subjects were asked to weight attributes in value trees containing three objectives which were specified by either three, four, five, or six attributes. The robust...

To investigate the effect of time horizon on investment behavior, this paper reports the results of an experiment in which business graduate students provided certainty equivalents and judged various dimensions of the outcome distribution of simple gambles that were played either once or...

Once they have observed information, hindsight-biased agents fail to remember how ignorant they were initially; "they knew it all along." We formulate a theoretical model of this bias, providing a foundation for empirical measures and implying that hindsight-biased agents learning about...