Intertemporal Prospect Theory

Item Type Monograph (Working Paper)
Abstract Prospect Theory is the most prominent contender of expected utility theory to describe decisions under risk. In atemporal contexts, prospect theory is well understood. In intertemporal contexts, however, it is not clear how prospect theory should be applied (in particular, whether probabilities should be weighted within time periods or whether the probabilities of present values should be weighted). It is also unclear what parametric specifications of probability-weighting and value functions should be used. We find in a pre-registered experiment on a representative sample that an application of prospect theory weighting probabilities of present values predicts decisions best. Estimated probability weighting functions are very similar to those typically estimated in atemporal settings, while value functions are almost linear with a loss aversion coefficient close to one.
Authors Lampe, Immanuel & Weber, Matthias
Language English
Subjects business studies
economics
finance
health sciences
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date 19 May 2021
Contact Email Address matthias.weber@unisg.ch
Depositing User Prof. Dr. Matthias Weber
Date Deposited 19 May 2021 14:17
Last Modified 20 Jul 2022 17:45
URI: https://www.alexandria.unisg.ch/publications/263177

Download

[img] Text
SoF_WP_21_09_Intertemporal_Prospect_Theory.pdf - Draft Version
Download (7MB)

Citation

Lampe, Immanuel & Weber, Matthias: Intertemporal Prospect Theory. , 2021,

Statistics

https://www.alexandria.unisg.ch/id/eprint/263177
Edit item Edit item
Feedback?