Violations of Cumulative Prospect Theory in Mixed Gambles with Moderate Probabilities

Guido Baltussen, Thierry Post and Pim van Vliet

Chapter 10 in Handbook of the Fundamentals of Financial Decision Making:In 2 Parts, 2013, pp 177-179 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In a classroom choice experiment with mixed gambles and moderate probabilities, we find severe violations of cumulative prospect theory (CPT) and of Markowitz stochastic dominance. Our results shed new light on the exchange between Levy and Levy (2002) and Wakker (2003) in this journal.

Keywords: Financial Decision Making; Asset Pricing; Prospect Theory; Utility Theory; Risk Aversion; Static Portfolio Theory; Stochastic Dominance; Dynamic Modeling; Dynamic Portfolio Theory; Tactical Asset Allocation; Kelly Strategy; Capital Growth (search for similar items in EconPapers)
Date: 2013
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