We show that for international economies with two countries, in which agents have additively separable utility functions, the existence of sunspot equilibria is equivalent to the occurrence of the transfer paradox. This equivalence enables us to provide some new insights on the relation of the...

We consider economies with additively separable utility functions and give conditions for the two-agents case under which the existence of sunspot equilibria is equivalent to the occurrence of the transfer paradox. This equivalence enables us to show that sunspots cannot matter if the initial...

The disposition effect is the observation that investors hold winning stocks too long and sell losing stocks too early. A standard explanation of the disposition effect refers to prospect theory and in particular to the asymmetric risk aversion according to which investors are risk averse when...

We consider a dynamic general equilibrium model with incomplete markets in which we derive conditions for separating the savings decision from the asset allocation decision. It is shown that with logarithmic utility functions this separation holds for any heterogeneity of discount factors while...

This paper gives a survey over a common aspect of prospect theory that occurred to be of importance in a series of recent papers developed by Enrico De Giorgi, Thorsten Hens, Janos Mayer, Haim Levy, Thierry Post, Marc Oliver Rieger and Mei Wang. The common aspect of these papers is that the...

The paper examines a dynamic model of a financial market with endogenous asset prices determined by short run equilibrium of supply and demand. Assets pay dividends, that are partially consumed and partially reinvested. The traders use fixed-mix investment strategies (portfolio rules),...

Using canonical data for the US stock and bond markets, we show that the kinked piecewise exponential value function can rationalize the cross-section of stock returns in addition to the level of the equity premium, while the kinked piecewise-power value function of Tversky and Kahneman can...

We develop an algorithm to compute asset allocations for Kahneman and Tversky's (1979) prospect theory. An application to benchmark data as in Fama and French (1992) shows that the equity premium puzzle is resolved for parameter values similar to those found in the laboratory experiments of...

This paper tests the effect of a matching mechanism on donations in a controlled field experiment. We match the donations of students at the University of Zurich who, each semester, have to decide whether they wish to contribute to two Social Funds. Our results support the hypothesis that a...

We consider economies with additively separable utility functions and give conditions for the two-agents case under which the existence of sunspot equilibria is equivalent to the occurrence of the transfer paradox. This equivalence enables us to show that sunspots cannot matter if the initial...