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What is Loss Aversion?

  • Ulrich Schmidt

    ()

  • Horst Zank

A behavioral definition of loss aversion is proposed and its implications for original and cumulative prospect theory are analyzed. Original prospect theory is in agreement with the new loss aversion condition, and there utility is capturing all effects of loss aversion. In cumulative prospect theory loss aversion is captured by both the weighting functions and the utility function. Further, some restrictions apply for the weighting functions involved in the latter model. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11166-005-6564-6
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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 30 (2005)
Issue (Month): 2 (January)
Pages: 157-167

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Handle: RePEc:kap:jrisku:v:30:y:2005:i:2:p:157-167
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100299

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  1. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
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  9. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
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  11. Alain Chateauneuf & Michèle Cohen & Isaac Meilijson, 2005. "More pessimism than greediness: a characterization of monotone risk aversion in the Rank-Dependent Expected Utility model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00211906, HAL.
  12. 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.
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  17. Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, vol. 46(11), pages 1497-1512, November.
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