Kiel Working Papers, Kiel Institute for World Economics
No 1611:
Endogenizing Prospect Theory's Reference Point
Ulrich Schmidt and Horst Zank
Abstract: In previous models of (cumulative) prospect theory
reference-dependence of preferences is imposed beforehand and the location
of the reference point is exogenously determined. This note provides a
foundation of prospect theory, where reference-dependence is derived from
preference conditions and a unique reference point arises endogenously
Keywords: Prospect theory, reference point, diminishing sensitivity, loss aversion; (follow links to similar papers)
JEL-Codes: D81; (follow links to similar papers)
16 pages, March 2010
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