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Loss-averse preferences and portfolio choices: An extension

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  • Eeckhoudt, Louis
  • Fiori, Anna Maria
  • Rosazza Gianin, Emanuela

Abstract

In this paper we generalise existing models of loss-averse preferences. This extension clarifies the impact of stochastic changes in risk on the optimal degree of risk taking. Our more general model highlights an intuitive link between the literature on loss-averse behaviours and the notions of prudence and temperance recently introduced in the literature. We also stress the link between our approach and the use of VaR and CVaR as risk measures.

Suggested Citation

  • Eeckhoudt, Louis & Fiori, Anna Maria & Rosazza Gianin, Emanuela, 2016. "Loss-averse preferences and portfolio choices: An extension," European Journal of Operational Research, Elsevier, vol. 249(1), pages 224-230.
  • Handle: RePEc:eee:ejores:v:249:y:2016:i:1:p:224-230
    DOI: 10.1016/j.ejor.2015.08.019
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    References listed on IDEAS

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    1. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
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    5. Eeckhoudt, Louis & Etner, Johanna & Schroyen, Fred, 2009. "The values of relative risk aversion and prudence: A context-free interpretation," Mathematical Social Sciences, Elsevier, vol. 58(1), pages 1-7, July.
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    9. Hwang, Soosung & Satchell, Steve E., 2010. "How loss averse are investors in financial markets?," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2425-2438, October.
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    17. Enrico Diecidue & Jeroen van de Ven, 2008. "Aspiration Level, Probability Of Success And Failure, And Expected Utility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 683-700, May.
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    1. repec:eee:ejores:v:261:y:2017:i:3:p:984-993 is not listed on IDEAS
    2. repec:eee:ejores:v:264:y:2018:i:1:p:280-293 is not listed on IDEAS

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