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SP/A and CPT: A reconciliation of two behavioral decision theories

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  • Rieger, Marc Oliver

Abstract

We show that security-potential-aspiration theory (SP/A) and cumulative prospect theory (CPT), although based on very different psychological principles are mathematically very similar when studied in the appropriate framework. This helps to interpret results on portfolio optimization under behavioral preferences.

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  • Rieger, Marc Oliver, 2010. "SP/A and CPT: A reconciliation of two behavioral decision theories," Economics Letters, Elsevier, vol. 108(3), pages 327-329, September.
    • Handle: RePEc:eee:ecolet:v:108:y:2010:i:3:p:327-329
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    References listed on IDEAS

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    1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60(2), pages 151-151.
    3. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56(4), pages 279-279.
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    Cited by:

    1. Fafchamps, Marcel & Kebede, Bereket & Zizzo, Daniel John, 2015. "Keep up with the winners: Experimental evidence on risk taking, asset integration, and peer effects," European Economic Review, Elsevier, vol. 79(C), pages 59-79.
    2. Phillips Peter J. & Pohl Gabriela, 2018. "The Deferral of Attacks: SP/A Theory as a Model of Terrorist Choice when Losses Are Inevitable," Open Economics, De Gruyter, vol. 1(1), pages 71-85, February.
    3. Kuo-Hwa Chang & Michael Nayat Young, 2019. "Portfolios Optimizations of Behavioral Stocks with Perception Probability Weightings," Annals of Economics and Finance, Society for AEF, vol. 20(2), pages 817-845, November.
    4. Stefan Zeisberger, 2022. "Do people care about loss probabilities?," Journal of Risk and Uncertainty, Springer, vol. 65(2), pages 185-213, October.
    5. Baars, Maren & Cordes, Henning & Mohrschladt, Hannes, 2020. "How negative interest rates affect the risk-taking of individual investors: Experimental evidence," Finance Research Letters, Elsevier, vol. 32(C).
    6. Bakó, Barna & Neszveda, Gábor, 2024. "An aspirational perspective on the negative risk-return relationship," Finance Research Letters, Elsevier, vol. 61(C).
    7. Ramzi Suleiman, 2017. "Economic Harmony: An Epistemic Theory of Economic Interactions," Games, MDPI, vol. 8(1), pages 1-15, January.

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