Loss aversion in a multi-period model
AbstractAn individual faces a choice between streams of outcomes in several periods in the future. This paper examines an axiomatization of preference relations over these streams that leads to a simple functional representation of these preferences. Motivated by the loss- aversion aspects of Tversky and Kahneman's prospect theory, the axioms lead to a representation that takes into account not only the utility of the per-period outcomes (instantaneous payoffs,) but also the differences between the utility of pairs of adjacent outcomes, and the direction of the differences (gains or losses). In this framework loss aversion is defined and characterized.
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Bibliographic InfoArticle provided by Elsevier in its journal Mathematical Social Sciences.
Volume (Year): 33 (1997)
Issue (Month): 3 (June)
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Web page: http://www.elsevier.com/locate/inca/505565
Other versions of this item:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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