A genuine foundation for prospect theory

Ulrich Schmidt and Horst Zank ()

Journal of Risk and Uncertainty, 2012, vol. 45, issue 2, 97-113

Abstract: In most models of (cumulative) prospect theory, reference dependence of preferences is imposed beforehand and the location of the reference point is determined exogenously. This paper presents principles that provide critical tests and foundations for prospect theory preferences without assuming reference-dependent preferences a priori. Instead, reference dependence is derived from behavior and the reference point arises endogenously. Copyright Springer Science+Business Media New York 2012

Keywords: Diminishing sensitivity; Prospect theory; Reference dependence; Reference point; Utility; D81 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (10)

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Working Paper: A Genuine Foundation for Prospect Theory (2011)
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DOI: 10.1007/s11166-012-9150-8

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