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233
Prospect theory: An analysis of decisions under risk
 Econometrica
, 1979
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Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at
From Stochastic Dominance to MeanRisk Models: Semideviations as Risk Measures
, 1997
"... Two methods are frequently used for modeling the choice among uncertain outcomes: stochastic dominance and mean–risk approaches. The former is based on an axiomatic model of riskaverse preferences but does not provide a convenient computational recipe. The latter quantifies the problem in a lucid f ..."
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Cited by 104 (20 self)
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Two methods are frequently used for modeling the choice among uncertain outcomes: stochastic dominance and mean–risk approaches. The former is based on an axiomatic model of riskaverse preferences but does not provide a convenient computational recipe. The latter quantifies the problem in a lucid form of two criteria with possible tradeoff analysis, but cannot model all riskaverse preferences. In particular, if variance is used as a measure of risk, the resulting mean–variance (Markowitz) model is, in general, not consistent with stochastic dominance rules. This paper shows that the standard semideviation (square root of the semivariance) as the risk measure makes the mean–risk model consistent with the second degree stochastic dominance, provided that the tradeoff coefficient is bounded by a certain constant. Similar results are obtained for the absolute semideviation, and for the absolute and standard deviations in the case of symmetric or bounded distributions. In the analysis we use a new tool, the Outcome–Risk diagram,
The Role of Aspiration Level in Risky Choice: A Comparison of Cumulative Prospect Theory and SP/A Theory
 Journal of Mathematical Psychology
, 1999
"... In recent years, descriptive models of risky choice have incorporated features that reflect the importance of particular outcome values in choice. Cumulative prospect theory (CPT) does this by inserting a reference point in the utility function. SP/A (securitypotential/aspiration) theory uses aspir ..."
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Cited by 81 (0 self)
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In recent years, descriptive models of risky choice have incorporated features that reflect the importance of particular outcome values in choice. Cumulative prospect theory (CPT) does this by inserting a reference point in the utility function. SP/A (securitypotential/aspiration) theory uses aspiration level as a second criterion in the choice process. Experiment 1 compares the ability of the CPT and SP/A models to account for the same withinsubjects data set and finds in favor of SP/A. Experiment 2 replicates the main finding of Experiment 1 in a betweensubjects design. The final discussion brackets the SP/A result by showing the impact on fit of both decreasing and increasing the number of free
Optimal asset allocation towards the end of the life cycle: To annuitise or not to annuitise
 Journal of Risk and Insurance
, 1998
"... Most individuals must decide how much of their marketable wealth should be annuitized at retirement. The natural alternative to annuitization is investing the wealth and withdrawing the exact same consumption stream as the annuity would have provided. Of course, this strategy risks underfunding ret ..."
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Cited by 67 (11 self)
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Most individuals must decide how much of their marketable wealth should be annuitized at retirement. The natural alternative to annuitization is investing the wealth and withdrawing the exact same consumption stream as the annuity would have provided. Of course, this strategy risks underfunding retirement in the event of below average investment returns with above average longevity. This paper develops the framework for a third alternative. We propose a model in which retirees defer annuitization, via a "doityourself " scheme, until it is no longer possible to beat the mortalityadjusted rate of return from a life annuity. We make use of a unique Canadian database to calibrate the insurance loads and interest rate parameters. We conclude that in the current environment, a sixty five year old female (male) has a ninety percent (eightyfive percent) chance of beating the rate of return from a life annuity, until age eighty.
An Index Of Loss Aversion
 Journal of Economic Theory
, 2000
"... Under prospect theory, three components influence the risk attitude of a decision maker: the utility function, the probability weighting function, and loss aversion. Loss aversion reflects the observed behavior of decision makers' being more sensitive to losses than to gains, resulting in a uti ..."
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Cited by 62 (2 self)
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Under prospect theory, three components influence the risk attitude of a decision maker: the utility function, the probability weighting function, and loss aversion. Loss aversion reflects the observed behavior of decision makers' being more sensitive to losses than to gains, resulting in a utility function that is steeper for losses than for gains. Much of the empirically observed risk aversion is due to loss aversion. This paper proposes an index of loss aversion. It also demonstrates how the degree of loss aversion of two decision makers can be compared and how its influences on comparative risk aversion can be examined. The main result characterizes comparative loss aversion in terms of preferences.
On consistency of stochastic dominance and mean–semideviation models
 MATHEMATICAL PROGRAMMING
, 1997
"... We analyse relations between two methods frequently used for modeling the choice among uncertain outcomes: stochastic dominance and mean–risk approaches. The concept of αconsistency of these approaches is defined as the consistency within a bounded range of mean–risk tradeoffs. We show that mean ..."
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Cited by 43 (11 self)
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We analyse relations between two methods frequently used for modeling the choice among uncertain outcomes: stochastic dominance and mean–risk approaches. The concept of αconsistency of these approaches is defined as the consistency within a bounded range of mean–risk tradeoffs. We show that mean–risk models using central semideviations as risk measures are αconsistent with stochastic dominance relations of the corresponding degree if the tradeoff coefficient for the semideviation is bounded by one.
Markowitz revisited: meanvariance models in financial portfolio analysis
 SIAM Rev
, 2001
"... Abstract. Meanvariance portfolio analysis provided the first quantitative treatment of the tradeoff between profit and risk. We describe in detail the interplay between objective and constraints in a number of singleperiod variants, including semivariance models. Particular emphasis is laid on avo ..."
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Cited by 35 (1 self)
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Abstract. Meanvariance portfolio analysis provided the first quantitative treatment of the tradeoff between profit and risk. We describe in detail the interplay between objective and constraints in a number of singleperiod variants, including semivariance models. Particular emphasis is laid on avoiding the penalization of overperformance. The results are then used as building blocks in the development and theoretical analysis of multiperiod models based on scenario trees. A key property is the possibility of removing surplus money in future decisions, yielding approximate downside risk minimization.
Prospect theory and riskreturn association 203
 Econometrica
, 1979
"... A new sample of 85 industries (about 3,300 firms) defined in terms of homogenous products provides strong evidence that prospect theory can explain the tradeoff between two of the most researched parameters in evaluating organizations, namely, risk and return. In particular, organizations below thei ..."
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Cited by 34 (0 self)
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A new sample of 85 industries (about 3,300 firms) defined in terms of homogenous products provides strong evidence that prospect theory can explain the tradeoff between two of the most researched parameters in evaluating organizations, namely, risk and return. In particular, organizations below their target level are found to be risktakers (Hl) while organizations above their target level are riskaverters (H2); moreover, the below target tradeofl was generally steeper than the above target with a median below to above slope ratio of about 3:l (H3). 1.