In this paper, we investigate a novel multiperiod portfolio decision model for loss-averse investors with dynamically adapted reference points in a market with serially correlated returns. We demonstrate that the optimal policy is a piecewise linear function of the deviation between current...

We develop a formal model to investigate the implications of bounded rationality for the origin and structure of loss aversion and optimism in marketplaces. Based on Simon's original description, we explicitly model bounded rationality as a decision mechanism that captures incomplete...