Loss Aversion in a Multi-Period Model

Jonathan Shalev ()

Game Theory and Information from EconWPA

Abstract: An individual faces a choice between streams of outcomes in several periods in the future. This paper examines an axiomatization of preference relations over these streams that leads to a simple functional representation of these preferences. Motivated by the loss- aversion aspects of Tversky and Kahneman's prospect theory, the axioms lead to a representation that takes into account not only the utility of the per-period outcomes (instantaneous payoffs,) but also the differences between the utility of pairs of adjacent outcomes, and the direction of the differences (gains or losses). In this framework loss aversion is defined and characterized.

Keywords: loss-aversion; utility; multi-period decisions. (search for similar items in EconPapers)
JEL-codes: C7 D8 (search for similar items in EconPapers)
Date: 1994-07-14, Revised 1997-03-18
Note: 31 pages, Postscript file from LaTeX. Major revision of paper entitled An Axiomatization of Loss Aversion in a Multi-Period Model
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Related works:
Journal Article: Loss aversion in a multi-period model (1997)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpga:9407001

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