The Data of Levy and Levy (2002) ÜProspect Theory: Much Ado About Nothing?Ý Actually Support Prospect Theory
Levy 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.
Volume (Year): 49 (2003)
Issue (Month): 7 (July)
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- Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151-151.
- Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
- Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
- Moshe Levy & Haim Levy, 2002. "Prospect Theory: Much Ado About Nothing?," Management Science, INFORMS, vol. 48(10), pages 1334-1349, October.