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Mixture Attitudes of Expectation-Based Loss Aversion

Daijiro Kawanaka ()
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Daijiro Kawanaka: Graduate school of Osaka University

No 23-02, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Koszegi and Rabin (2006, 2007) formulate loss-aversion models called Preferred Personal Equilibrium (PPE) and Choice-acclimating Personal Equilibrium (CPE) so successfully that many papers have been applied their models to a variety of economic fields in this decade. In this paper, without assuming any specific functional form, I show that these two loss-aversion models satisfy strong mixture aversion in the sense that a non-degenerate lottery is strictly preferred to any mixture between the lottery and its certainty equivalent. This property distinguishes these loss-aversion models from many other standard models such as the expected utility theory and disappointment aversion so that this result allows experimental economists to test a class of these models in a simple setting.

Keywords: Prospect theory; Loss aversion; Reference point; Mixture aversion; Betweenness (search for similar items in EconPapers)
JEL-codes: D11 D81 D91 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2023-02
New Economics Papers: this item is included in nep-cbe, nep-mic and nep-upt
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