The Data of Levy and Levy (2002) ÜProspect Theory: Much Ado About Nothing?Ý Actually Support Prospect Theory

Peter Wakker

Management Science, 2003, vol. 49, issue 7, 979-981

Abstract: Levy and Levy (Management Science2002) present data that, according to their claims, violate prospect theory. They suggest that prospect theory's hypothesis of an S-shaped value function, concave for gains and convex for losses, is incorrect. However, all the data of Levy and Levy are perfectly consistent with the predictions of prospect theory, as can be verified by simply applying prospect theory formulas. The mistake of Levy and Levy is that they, incorrectly, thought that probability weighting could be ignored.

Keywords: Prospect Theory; Stochastic Dominance; Utility; Probability Weighting; Inverses (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (13)

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