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Violations of Cumulative Prospect Theory in Mixed Gambles with Moderate Probabilities

  • 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)

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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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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  1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  2. Moshe Levy & Haim Levy, 2002. "Prospect Theory: Much Ado About Nothing?," Management Science, INFORMS, vol. 48(10), pages 1334-1349, October.
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