Name
Abstract | ||
|---|---|---|
This study investigates reference-dependent choice with a stochastic, state-dependent reference point. The optimal reference-dependent solution equals the optimal consumption solution (no loss aversion) if the reference point is selected fully endogenously. Given that loss aversion is widespread, we conclude that the reference point generally includes an important exogenously fixed component. We develop a choice model in which adjustment costs can cause stickiness relative to an initial, exogenous reference point. Using historical U.S. investment benchmark data, we show that this model is consistent with diversification across bonds and stocks for a wide range of evaluation horizons, despite the historically high-risk premium of stocks compared to bonds. This paper was accepted by Peter Wakker, decision analysis. |
Year | DOI | Venue |
|---|---|---|
2011 | 10.1287/mnsc.1110.1338 | Management Science |
Keywords | Field | DocType |
state-dependent reference point,exogenous reference point,adjustment cost,reference point,choice model,loss aversion,peter wakker,reference-dependent choice,optimal reference-dependent solution,optimal consumption solution,asset pricing,random variable,regret theory,behavioral finance,decision analysis,equity premium puzzle,indexation | Bond,Loss aversion,Economics,Equity premium puzzle,Regret,Microeconomics,Capital asset pricing model,Diversification (marketing strategy),Stock (geology),Behavioral economics | Journal |
Volume | Issue | ISSN |
57 | 6 | 0025-1909 |
Citations | PageRank | References |
6 | 0.74 | 5 |
Authors | ||
2 | ||
Name | Order | Citations | PageRank |
|---|---|---|---|
| Enrico De Giorgi | 1 | 22 | 2.03 |
| Thierry Post | 2 | 164 | 29.39 |