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Violations of Cumulative Prospect Theory in Mixed Gambles with Moderate Probabilities

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Author Info

  • Guido Baltussen

    ()
    (Erasmus School of Economics and Tinbergen Institute, P.O. Box 1738, Burgemeester Oudlaan 50, 3000 DR Rotterdam, The Netherlands)

  • Thierry Post

    ()
    (Erasmus School of Economics, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands)

  • Pim van Vliet

    ()
    (Robeco, P.O. Box 973, 3000 DR Rotterdam, The Netherlands)

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.

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File URL: http://dx.doi.org/10.1287/mnsc.1050.0544
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 52 (2006)
Issue (Month): 8 (August)
Pages: 1288-1290

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Handle: RePEc:inm:ormnsc:v:52:y:2006:i:8:p:1288-1290

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Related research

Keywords: cumulative prospect theory; expected utility; mixed gambles; stochastic dominance; individual decision making under risk;

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Cited by:
  1. EECKHOUDT, Louis & SCHELSINGER, Harris & TSETLIN, Ilia, . "Apportioning of risks via stochastic dominance," CORE Discussion Papers RP -2096, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Cumova, Denisa & Nawrocki, David, 2014. "Portfolio optimization in an upside potential and downside risk framework," Journal of Economics and Business, Elsevier, vol. 71(C), pages 68-89.
  3. Gaudecker, H.M. von & Soest, A.H.O. van & Wengstrom, E., 2011. "Heterogeneity in risky choice behavior in a broad population," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3857699, Tilburg University.
  4. Rina Rosenblatt-Wisch, 2007. "Loss Aversion in Aggregate Macroeconomic Time Series," Working Papers 2007-06, Swiss National Bank.
  5. Greco, Salvatore & Rindone, Fabio, 2011. "The bipolar Choquet integral representation," MPRA Paper 38957, University Library of Munich, Germany, revised 14 Oct 2011.

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