In a classroom choice experiment with mixed gambles and moderate probabilities, we find severe violations of cumulative prospect theory (CPT) and of Markowitz stochastic dominance. Our results shed new light on the exchange between Levy and Levy (2002) and Wakker (2003) in this journal.

This study investigates reference-dependent choice with a stochastic, state-dependent reference point. The optimal reference-dependent solution equals the optimal consumption solution (no loss aversion) if the reference point is selected fully endogenously. Given that loss aversion is...

Following the equilibrium model which has been developed by Sharpe, Lintner and Treynor, several authors have developed one-parameter indexes as measures of performance. In this paper, it is shown that as long as the "true" horizon does not coincide with the horizon assumed in the empirical...

When two random variables are both additive or multiplicative, the effect of the way one "slices" the available period to subperiods (time intervals) is well documented in the literature. In this paper, we investigate the time interval effect when one of the variables is additive and one is...

While "most" decision makers may prefer one uncertain prospect over another, stochastic dominance rules as well as other investment criteria, will not reveal this preference due to some extreme utility functions in the case of even a very small violation of these rules. Such strict rules relate...

Prospect theory is a paradigm challenging the expected utility paradigm. One of the fundamental components of prospect theory is the S-shaped value function. The value function is mainly justified by experimental investigation of the certainty equivalents of prospects confined either to the...

It is common to use historical data in calculating the rates of return of risky options, and these data are used to calculate the mean and the variance, which are employed in the (MV) preference ranking. In this paper we study the effect of possible sampling error on the portfolio ranking. It is...

The use of the CAPM in empirical research is subject to some criticism. In light of this criticism the Stochastic Dominance criteria are offered as an alternative research method for the examination of market efficiency. The underlying assumptions of the two frameworks are discussed and the...

While Stochastic Dominance has been employed in various forms as early as 1932, it has only been since 1969--1970 that the notion has been developed and extensively employed in the area of economics, finance, agriculture, statistics, marketing and operations research. In this survey, the first-,...

Assuming that assets are traded in discrete time and that risk averse investors differ in their holding periods, we investigate the conditions under which the CAPM holds. It is shown that when portfolio rebalancing is allowed the CAPM holds in four cases not rigorously analyzed previously. These...