Until the Bitter End: On Prospect Theory in a Dynamic Context

Sebastian Ebert and Philipp Strack ()

American Economic Review, 2015, vol. 105, issue 4, 1618-33

Abstract: We provide a result on prospect theory decision makers who are naïve about the time inconsistency induced by probability weighting. If a market offers a sufficiently rich set of investment strategies, investors postpone their trading decisions indefinitely due to a strong preference for skewness. We conclude that probability weighting in combination with naïveté leads to unrealistic predictions for a wide range of dynamic setups. (JEL D81, G02, G11)

JEL-codes: D81 G02 G11 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/aer.20130896
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Citations: View citations in EconPapers (57)

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