Measuring Loss Aversion under Ambiguity: A Method to Make Prospect Theory Completely Observable

Abstract : We propose a simple, parameter‐free method that, for the first time, makes it possible to completely observe Tversky and Kahneman’s (1992) prospect theory. While methods existed to measure event weighting and the utility for gains and losses separately, there was no method to measure loss aversion under ambiguity. Our method allows this and thereby it can measure prospect theory’s entire utility function. Consequently, we can properly identify properties of utility and perform new tests of prospect theory. We implemented our method in an experiment and obtained support for prospect theory. Utility was concave for gains and convex for losses and there was substantial loss aversion. Both utility and loss aversion were the same for risk and ambiguity, as assumed by prospect theory, and sign‐comonotonic trade‐off consistency, the central condition of prospect theory, held.
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Article dans une revue
Journal of Risk and Uncertainty, Springer Verlag, 2016, 52 (1), pp.1-20. 〈10.1007/s11166-016-9234-y〉
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https://halshs.archives-ouvertes.fr/halshs-01242616
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Soumis le : dimanche 13 décembre 2015 - 14:43:39
Dernière modification le : mardi 26 septembre 2017 - 01:37:04

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Mohammed Abdellaoui, Han Bleichrodt, Olivier L’haridon, Dennie Van Dolder. Measuring Loss Aversion under Ambiguity: A Method to Make Prospect Theory Completely Observable. Journal of Risk and Uncertainty, Springer Verlag, 2016, 52 (1), pp.1-20. 〈10.1007/s11166-016-9234-y〉. 〈halshs-01242616〉

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