This paper studies the joint distribution of the default and prepayment losses for a large portfolio of loans, based on a bottom-up approach. The repayment behaviors of loans in the portfolio are determined by both systematic and idiosyncratic risk factors and are conditionally independent given...

Hyperbolic discounting, a key determinant of intertemporal behavior, captures individuals' preferences for smaller immediate rewards over larger delayed ones. This study examined how hyperbolic discounting influences investment loss tolerance using a large-scale dataset of Japanese investors....

There is a large literature evaluating the dual process model of cognition, including the biases and heuristic it implies. To advance this literature, we focus on what triggers decision makers to switch from the intuitive process (aka System 1) to the more deliberative process (aka System 2)....

This study examines firms' voluntary disclosure of tax loss carryforward (TLCF) information. We measure the content and presentation of TLCF information by a disclosure score based on hand collected data from annual reports. Our identification strategy employs new proprietary data to control for...

When trading in the call and put contracts of option chains, the portfolios of strikes must be selected. The trader must also decide whether to take long or short positions at the selected strikes. Dynamic strategies for making these decisions are discussed in this paper. On any day, the...

To date, the studies on managerial loss aversion have produced contradictory findings, making it impossible to: (i) identify the ultimate impact of managerial loss aversion on the value that organisations create for themselves and for their stakeholders, and (ii) mitigate the effect of...

This paper investigates a dynamic liability-driven investment policy for defined-benefit (DB) plans by incorporating the loss aversion of a sponsor, who is assumed to be more sensitive to underfunding than overfunding. Through the lens of prospect theory, we first set up a loss-aversion utility...

Narrow bracketing in combination with loss aversion has been shown to reduce individual risk-taking. This is known as myopic loss aversion (MLA) and has been corroborated by many studies. Recent evidence has contested this notion indicating that MLA's applicability is confined to highly...

In this paper, we test the realization effect, i.e., that risk-taking increases after a paper loss, whereas risk-taking decreases after a realized loss, using gambling data from a real casino. During a particular casino visit, losses are likely perceived as paper losses because the chance to...

Even though financial risk management has the ability to generate value, the use of financial derivatives among nonfinancial corporations remains limited. We identify a channel that contributes to this limited use: the decoupling of derivatives losses and operational gains. Specifically, firms...

Loss aversion postulates that people prefer avoiding losses over acquiring gains of equal size. It is a central part of prospect theory and, according to Daniel Kahneman, “the most significant contribution of psychology to behavioral economics” (Kahneman, 2011, p. 300). It has powerful...

Reference-dependent preferences can explain several puzzling observations about organizational change. We introduce a dynamic model in which a loss-neutral firm bargains with loss-averse workers over organizational change and wages. We show that change is often stagnant or slow for long periods...

This study measures the differences in ambiguity attitudes of groups and individuals in the gain and loss domain. We elicit the ambiguity attitudes and ambiguity-generated insensitivity for natural temperature events. We do not find significant differences between individuals and groups in our...