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- Title
A Behavioral Analysis of Stochastic Reference Dependence<sup>†</sup>.
- Authors
Masatlioglu, Yusufcan; Raymond, Collin
- Abstract
We examine the reference-dependent risk preferences of Kőszegi and Rabin (2007), focusing on their choice-acclimating personal equilibria. Although their model has only a trivial intersection (expected utility) with other reference-dependent models, it has very strong connections with models that rely on different psychological intuitions. We prove that the intersection of rank-dependent utility and quadratic utility, two well-known generalizations of expected utility, is exactly monotone linear gain-loss choice-acclimating personal equilibria. We use these relationships to identify parameters of the model, discuss loss and risk aversion, and demonstrate new applications. (JEL D11, D81)
- Subjects
RISK -- Mathematical models; FINANCIAL risk management; RISK aversion; LOSS aversion; EXPECTED utility
- Publication
American Economic Review, 2016, Vol 106, Issue 9, p2760
- ISSN
0002-8282
- Publication type
Article
- DOI
10.1257/aer.20140973