We propose a rank-dependent portfolio choice model in continuous time that captures the role in decision making of three emotions: hope, fear and aspirations. Hope and fear are modeled through an inverse-S shaped probability weighting function and aspirations through a probabilistic constraint....

We formulate and carry out an analytical treatment of a single-period portfolio choice model featuring a reference point in wealth, S-shaped utility (value) functions with loss aversion, and probability weighting under Kahneman and Tversky's cumulative prospect theory (CPT). We introduce a new...

We consider an optimal insurance design problem for an individual whose preferences are dictated by the rank-dependent expected utility (RDEU) theory with a concave utility function and an inverse-S shaped probability distortion function. This type of RDEU is known to describe human behavior...