Template-type: ReDif-Paper 1.0
Author-Name: Peters Hans 
Author-workplace-name: METEOR
Title: A preference foundation for constant loss aversion
Abstract: Following prospect theory we consider decision making under risk in which the decision maker''s preferences depend on a reference outcome. An outcome below this reference outcome is regarded as resulting from a loss: a loss decreases the decision maker''s basic utility more than a comparable gain increases this utility. An elegant and simple method to model this phenomenon was proposed by Shalev (2002): the utility of an outcome below the reference outcome is obtained from the basic utility by subtracting a multiple of the loss in basic utility: this multiple, the loss aversion coefficient, is constant across different reference outcomes. We provide a preference foundation for this loss aversion model.
Keywords: econometrics; 
Series: Research Memoranda
Creation-Date: 2010
Number: 062
File-URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:fc22f7c6-63c1-45fb-9c80-100f72697070/datastreams/ASSET1/content
File-Format: application/pdf
File-Size: 335669
Handle: RePEc:unm:umamet:2010062