Endogenous Prospect Theory

Ulrich Schmidt and Horst Zank

Open Access Publications from Kiel Institute for the World Economy from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In previous models of (cumulative) prospect theory reference-dependence of preferences is imposed beforehand and the location of the reference point is exogenously determined. This paper provides an axiomatization of a new specification of cumulative prospect theory, termed endogenous prospect theory, where reference-dependence is derived from preference conditions and a unique reference point arises endogenously.

Keywords: prospect theory; reference point; diminishing sensitivity; loss aversion (search for similar items in EconPapers)
JEL-codes: C91 D80 D81 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkie:37536

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