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A genuine foundation for prospect theory


  • Ulrich Schmidt
  • Horst Zank



In most models of (cumulative) prospect theory, reference dependence of preferences is imposed beforehand and the location of the reference point is determined exogenously. This paper presents principles that provide critical tests and foundations for prospect theory preferences without assuming reference-dependent preferences a priori. Instead, reference dependence is derived from behavior and the reference point arises endogenously. Copyright Springer Science+Business Media New York 2012

Suggested Citation

  • Ulrich Schmidt & Horst Zank, 2012. "A genuine foundation for prospect theory," Journal of Risk and Uncertainty, Springer, vol. 45(2), pages 97-113, October.
  • Handle: RePEc:kap:jrisku:v:45:y:2012:i:2:p:97-113 DOI: 10.1007/s11166-012-9150-8

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    Cited by:

    1. Attema, Arthur E. & Brouwer, Werner B.F. & l’Haridon, Olivier, 2013. "Prospect theory in the health domain: A quantitative assessment," Journal of Health Economics, Elsevier, vol. 32(6), pages 1057-1065.
    2. Geiger, Gebhard, 2015. "Risk pricing in a non-expected utility framework," European Journal of Operational Research, Elsevier, vol. 246(3), pages 944-948.
    3. Peter Brooks & Simon Peters & Horst Zank, 2014. "Risk behavior for gain, loss, and mixed prospects," Theory and Decision, Springer, vol. 77(2), pages 153-182, August.
    4. Mehrmann, Annika & Sureth-Sloane, Caren, 2017. "Tax loss offset restrictions and biased perception of risky investments," arqus Discussion Papers in Quantitative Tax Research 222, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Andreas Hack & Frauke Bieberstein & Nils D. Kraiczy, 2016. "Reference point formation and new venture creation," Small Business Economics, Springer, vol. 46(3), pages 447-465, March.
    6. Caspar G. Chorus, 2014. "Capturing alternative decision rules in travel choice models: a critical discussion," Chapters,in: Handbook of Choice Modelling, chapter 13, pages 290-310 Edward Elgar Publishing.

    More about this item


    Diminishing sensitivity; Prospect theory; Reference dependence; Reference point; Utility; D81;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty


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