ProspectTheory1-ho

ProspectTheory1-ho - Overview Loss Aversion Diminishing...

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Unformatted text preview: Overview Loss Aversion Diminishing Sensitivity Non-linear Probability Weighting Modeling Reference-dependent Utility Introduction to Prospect Theory January 6, 2011 Overview Loss Aversion Diminishing Sensitivity Non-linear Probability Weighting Modeling Reference-dependent Utility Introduction to Prospect Theory Social scientists look for parsimonious models that predict human behavior Prospect Theory (KT, 1979) is a descriptive model One of the most widely cited and influential social science papers ever published Overview Loss Aversion Diminishing Sensitivity Non-linear Probability Weighting Modeling Reference-dependent Utility Overview Today: Features of PT Motivate/examine evidence Begin modeling approach Tuesday: Modeling reference-dependent preferences Examples Calibrating risk attitudes Weaknesses Overview Loss Aversion Diminishing Sensitivity Non-linear Probability Weighting Modeling Reference-dependent Utility Features of Prospect Theory Reference-dependent preferences: u ( c t | r t ), not u ( c t ); r t is some reference level. (For now: status quo ante) Loss aversion Diminishing sensitivity Non-linear probability weighting EU: probabilities enter linearly PT: enter as decision weights via weighting function Overview Loss Aversion Diminishing Sensitivity Non-linear Probability Weighting Modeling Reference-dependent Utility Loss Aversion: Losses & Gains Matter Summary of evidence Endowment effects Surveys/experiments on risk DMU ( w ) cannot explain risk aversion Overview Loss Aversion Diminishing Sensitivity Non-linear Probability Weighting Modeling Reference-dependent Utility Loss Aversion Endowment effect: KKT...
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This note was uploaded on 12/26/2011 for the course ECON 227A taught by Professor Grossman during the Fall '09 term at UCSB.

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ProspectTheory1-ho - Overview Loss Aversion Diminishing...

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