On the potential for observational equivalence in experiments on risky choice when a power value function is assumed

David Peel and Jie Zhang

Economics Letters, 2012, vol. 116, issue 1, 8-10

Abstract: We demonstrate theoretically and illustrate the implications of assuming power utility when the true function is of the expo-power form. Empirical results can appear to be consistent with cumulative prospect theory when they are in fact generated from a Markowitz model.

Keywords: Cumulative prospect theory; Power value function; Markowitz model; Expo-value utility function; Probability distortion; Lotteries (search for similar items in EconPapers)
JEL-codes: C72 C92 D80 D84 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:116:y:2012:i:1:p:8-10

DOI: 10.1016/j.econlet.2011.12.116

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