The Data of Levy and Levy (2002) ÜProspect Theory: Much Ado About Nothing?Ý Actually Support Prospect Theory
AbstractLevy 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.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 49 (2003)
Issue (Month): 7 (July)
Prospect Theory; Stochastic Dominance; Utility; Probability Weighting; Inverses;
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- Rina Rosenblatt-Wisch, 2007.
"Loss Aversion in Aggregate Macroeconomic Time Series,"
2007-06, Swiss National Bank.
- Rosenblatt-Wisch, Rina, 2008. "Loss aversion in aggregate macroeconomic time series," European Economic Review, Elsevier, vol. 52(7), pages 1140-1159, October.
- Michael H. Birnbaum & Jeffrey P. Bahra, 2007. "Gain-Loss Separability and Coalescing in Risky Decision Making," Management Science, INFORMS, vol. 53(6), pages 1016-1028, June.
- Baucells, Manel & Heukamp, Franz H., 2004. "Reevaluation of the results of Levy and Levy (2002a)," Organizational Behavior and Human Decision Processes, Elsevier, vol. 94(1), pages 15-21, May.
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