We demonstrate that in simple 2 X 2 games (cumulative) prospect theorypreferences can be evolutionarily stable, i.e. a population of players withprospect theory preferences can not be invaded by more rational players. Thisholds also if probability weighting is applied to the probabilities of...

We study probabilities which determine the payo of barrier options:the probability that an asset hits a barrier before maturity, theprobability that the asset is below the barrier at maturity, and theratio of both probabilities. The correct estimation of these probabilitieshas crucial eects on...

We study the influence of systematic probability misestimation on complexfinancial investment decisions on the context of structured financialproducts. Structured products have in recent years become more and morecomplex. We study the question whether this complexity might be a...

CEO compensation has increased substantially over the past 15 years, but so has forcedturnover. Motivated by this observation, we investigate whether part of the developmentof CEO pay can be explained by a premium which compensates CEOs for increased job risk.We ¯nd that for the CEOs of the...

Evolutionary nance studies the dynamic interaction of investment strategies in nancialmarkets. This market interaction generates a stochastic wealth dynamics on aheterogenous population of traders through the uctuation of asset prices and theirrandom payos. Asset prices are endogenously...

We study how the framework of classical game theory changes whenthe preferences of the players are described by Prospect Theory (PT)and Cumulative Prospect Theory (CPT) instead of Expected UtilityTheory. Specically, we study the inuence of framing eects and probabilityweighting on the existence...

Structured financial products have gained more and more popularity in recent years, but nevertheless has their success so far notthoroughly been analyzed. In this article we develop a theoreticalframework for the design of optimal structured products and analyzethe maximal utility gain for an...

Empirical investigations of analysts forecast surveys concerning earnings realizations find significant time varying biases usually attributed to the analysts liability to cognitive limitations. For example, a positive autocorrelation of analysts forecast errors is commonly explained by...

The k Nearest Neighb or (kNN) density estimator first for-malized by Loftsgaarden and Quesenb erry (1965) is central to a broad range of the literature on density estimation. It is knownto b e strongly uniformly consistent if k increases appropriatelywith the sample size. The contribution of...

We conduct controlled experiments in order to analyze individual trading behavior. Our results suggest that investors measure their gains relative to their initial wealth, and that this reference point together with past stock price changes determine the portfolio choices. Subjects choose a...