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We show that prospect theory offers a rich theory of casino gambling, one that captures several features of actual gambling behavior. First, we demonstrate that, for a wide range of preference parameter values, a prospect theory agent would be willing to gamble in a casino even if the casino...
Persistent link: https://www.econbiz.de/10005064832
A number of authors have suggested that investors derive utility from realizing gains and losses on assets that they own. We present a model of this "realization utility," analyze its predictions, and show that it can shed light on a number of puzzling facts. These include the disposition...
Persistent link: https://www.econbiz.de/10005720199
In 1979, Daniel Kahneman and Amos Tversky, published a paper in <em>Econometrica</em> titled "Prospect Theory: An Analysis of Decision under Risk." The paper presented a new model of risk attitudes called "prospect theory," which elegantly captured the experimental evidence on risk taking, including the...
Persistent link: https://www.econbiz.de/10011014374
Prospect theory, first described in a 1979 paper by Daniel Kahneman and Amos Tversky, is widely viewed as the best available description of how people evaluate risk in experimental settings. While the theory contains many remarkable insights, economists have found it challenging to apply these...
Persistent link: https://www.econbiz.de/10010692233