IDEAS home Printed from https://ideas.repec.org/a/eee/matsoc/v33y1997i3p203-226.html
   My bibliography  Save this article

Loss aversion in a multi-period model

Author

Listed:
  • Shalev, Jonathan

Abstract

An individual faces a choice between streams of outcomes in several periods in the future. This paper examines an axiomatization of preference relations over these streams that leads to a simple functional representation of these preferences. Motivated by the loss- aversion aspects of Tversky and Kahneman's prospect theory, the axioms lead to a representation that takes into account not only the utility of the per-period outcomes (instantaneous payoffs,) but also the differences between the utility of pairs of adjacent outcomes, and the direction of the differences (gains or losses). In this framework loss aversion is defined and characterized.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Shalev, Jonathan, 1997. "Loss aversion in a multi-period model," Mathematical Social Sciences, Elsevier, vol. 33(3), pages 203-226, June.
    • Handle: RePEc:eee:matsoc:v:33:y:1997:i:3:p:203-226
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165-4896(96)00832-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    2. Wakker, Peter, 1990. "Characterizing optimism and pessimism directly through comonotonicity," Journal of Economic Theory, Elsevier, vol. 52(2), pages 453-463, December.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Kahneman, Daniel & Thaler, Richard H, 1991. "Economic Analysis and the Psychology of Utility: Applications to Compensation Policy," American Economic Review, American Economic Association, vol. 81(2), pages 341-346, May.
    5. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    6. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    7. Gilboa, Itzhak, 1989. "Expectation and Variation in Multi-period Decisions," Econometrica, Econometric Society, vol. 57(5), pages 1153-1169, September.
    8. Lowenstein, George & Prelec, Drazen, 1991. "Negative Time Preference," American Economic Review, American Economic Association, vol. 81(2), pages 347-352, May.
    9. Peter Wakker, 1993. "Savage's Axioms Usually Imply Violation of Strict Stochastic Dominance," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 487-493.
    10. Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
    11. F J Anscombe & R J Aumann, 2000. "A Definition of Subjective Probability," Levine's Working Paper Archive 7591, David K. Levine.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kareen Rozen, 2010. "Foundations of Intrinsic Habit Formation," Econometrica, Econometric Society, vol. 78(4), pages 1341-1373, July.
    2. Roee Teper, 2009. "Time Continuity and Nonadditive Expected Utility," Mathematics of Operations Research, INFORMS, vol. 34(3), pages 661-673, August.
    3. Diecidue, Enrico & Wakker, Peter P, 2001. "On the Intuition of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 281-298, November.
    4. Sujoy Mukerji & Jean-Marc Tallon & EUREQua & CNRS - Universite Paris I., 2003. "An overview of economic applications of David Schmeidler`s models of decision making under uncertainty," Economics Series Working Papers 165, University of Oxford, Department of Economics.
    5. Zhaoyu Cao & Yucheng Zou & Xu Zhao & Kairong Hong & Yanwei Zhang, 2021. "Multidimensional Fairness Equilibrium Evaluation of Urban Housing Expropriation Compensation Based on VIKOR," Mathematics, MDPI, vol. 9(4), pages 1-26, February.
    6. De Waegenaere, Anja & Wakker, Peter P., 2001. "Nonmonotonic Choquet integrals," Journal of Mathematical Economics, Elsevier, vol. 36(1), pages 45-60, September.
    7. Hojman, Daniel & Kast, Felipe, 2009. "On the Measurement of Poverty Dynamics," Working Paper Series rwp09-035, Harvard University, John F. Kennedy School of Government.
    8. Wakai, Katsutoshi, 2011. "Modeling nonmonotone preferences: The case of utility smoothing," Journal of Mathematical Economics, Elsevier, vol. 47(2), pages 213-226, March.
    9. Chateauneuf, Alain & Ventura, Caroline, 2013. "G-continuity, impatience and myopia for Choquet multi-period utilities," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 97-105.
    10. Zhaoyu Cao & Xu Zhao & Yucheng Zou & Kairong Hong & Yanwei Zhang, 2021. "Multidimensional Fair Fuzzy Equilibrium Evaluation of Housing Expropriation Compensation from the Perspective of Behavioral Preference: A Case Study from China," Mathematics, MDPI, vol. 9(6), pages 1-22, March.
    11. Faruk Gul & Paulo Natenzon & Wolfgang Pesendorfer, 2020. "Random Evolving Lotteries and Intrinsic Preference for Information," Working Papers 2020-71, Princeton University. Economics Department..
    12. De Waegenaere, A.M.B. & Wakker, P.P., 1997. "Choquet Integrals With Respect to Non-Monotonic Set Functions," Other publications TiSEM 85f2b7aa-da15-4c19-9765-b, Tilburg University, School of Economics and Management.
    13. André Lapied & Robert Kast, 2005. "Updating Choquet valuation and discounting information arrivals," Working Papers 05-09, LAMETA, Universtiy of Montpellier, revised Jan 2005.
    14. SHALEV, Jonathan, 1998. "Loss aversion in repeated games," LIDAM Discussion Papers CORE 1998014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    15. Wakai, Katsutoshi, 2012. "An infinite-horizon model of nonmonotone utility smoothing," Economics Letters, Elsevier, vol. 116(2), pages 170-173.
    16. Chateauneuf, Alain & Rebille, Yann, 2004. "Some characterizations of non-additive multi-period models," Mathematical Social Sciences, Elsevier, vol. 48(3), pages 235-250, November.
    17. Tadashi Sekiguchi & Katsutoshi Wakai, 2016. "Repeated Games with Recursive Utility:Cournot Duopoly under Gain/Loss Asymmetry," Discussion papers e-16-006, Graduate School of Economics , Kyoto University.
    18. Ren Tan & Kairong Hong, 2021. "Research on Extreme Dispute Decisions of Large-Scale Engineering Projects from the Perspective of Multidimensional Preferences," Mathematics, MDPI, vol. 9(22), pages 1-24, November.
    19. Han Bleichrodt & José Luis Pinto, 2000. "An experimental test of loss aversion and scale compatibility," Working Papers, Research Center on Health and Economics 467, Department of Economics and Business, Universitat Pompeu Fabra.
    20. Florian Gerth & Katia Lopez & Krishna Reddy & Vikash Ramiah & Damien Wallace & Glenn Muschert & Alex Frino & Leonie Jooste, 2021. "The Behavioural Aspects of Financial Literacy," JRFM, MDPI, vol. 14(9), pages 1-16, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. De Waegenaere, Anja & Wakker, Peter P., 2001. "Nonmonotonic Choquet integrals," Journal of Mathematical Economics, Elsevier, vol. 36(1), pages 45-60, September.
    2. Wakai, Katsutoshi, 2011. "Modeling nonmonotone preferences: The case of utility smoothing," Journal of Mathematical Economics, Elsevier, vol. 47(2), pages 213-226, March.
    3. Floris Heukelom, 2007. "Who are the Behavioral Economists and what do they say?," Tinbergen Institute Discussion Papers 07-020/1, Tinbergen Institute.
    4. De Waegenaere, A.M.B. & Wakker, P.P., 1997. "Choquet Integrals With Respect to Non-Monotonic Set Functions," Other publications TiSEM 85f2b7aa-da15-4c19-9765-b, Tilburg University, School of Economics and Management.
    5. Chip Heath & Marc Knez & Colin Camerer, 1993. "The strategic management of the entitlement process in the employment relationship," Strategic Management Journal, Wiley Blackwell, vol. 14(S2), pages 75-93, December.
    6. Ulrich Schmidt & Horst Zank, 2012. "A genuine foundation for prospect theory," Journal of Risk and Uncertainty, Springer, vol. 45(2), pages 97-113, October.
    7. feng dai & Jianqiang Liu, 2004. "Development Power and Derivative Process: A Mode and Theory for Macroeconomy Analysis," Macroeconomics 0403015, University Library of Munich, Germany.
    8. Eisenberger, Roselies & Weber, Martin, 1993. "Willingness-to-pay and willingness-to-accept for state contingent claims," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 309, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    9. Jonathan Shalev, 1998. "Loss Aversion in Repeated Games," Game Theory and Information 9802005, University Library of Munich, Germany.
    10. Bernardes, Luis G., 2003. "Reference-dependent preferences and the speed of economic liberalization," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(5), pages 521-548, November.
    11. Kontek, Krzysztof, 2009. "On Mental Transformations," MPRA Paper 16516, University Library of Munich, Germany.
    12. Bleichrodt, Han & Gafni, Amiram, 1996. "Time preference, the discounted utility model and health," Journal of Health Economics, Elsevier, vol. 15(1), pages 49-66, February.
    13. Jose Apesteguia & Miguel Ballester, 2009. "A theory of reference-dependent behavior," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(3), pages 427-455, September.
    14. Christian Grund & Dirk Sliwka, 2007. "Reference-Dependent Preferences and the Impact of Wage Increases on Job Satisfaction: Theory and Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 313-335, June.
    15. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    16. Erica Mina Okada, 2010. "Uncertainty, Risk Aversion, and WTA vs. WTP," Marketing Science, INFORMS, vol. 29(1), pages 75-84, 01-02.
    17. Attema, Arthur E. & Brouwer, Werner B.F., 2012. "A test of independence of discounting from quality of life," Journal of Health Economics, Elsevier, vol. 31(1), pages 22-34.
    18. R. Luce & A. Marley, 2005. "Ranked Additive Utility Representations of Gambles: Old and New Axiomatizations," Journal of Risk and Uncertainty, Springer, vol. 30(1), pages 21-62, January.
    19. Teck-Hua Ho & Juanjuan Zhang, 2008. "Designing Pricing Contracts for Boundedly Rational Customers: Does the Framing of the Fixed Fee Matter?," Management Science, INFORMS, vol. 54(4), pages 686-700, April.
    20. repec:cup:judgdm:v:17:y:2022:i:5:p:988-1014 is not listed on IDEAS
    21. Young, Diana L. & Goodie, Adam S. & Hall, Daniel B. & Wu, Eric, 2012. "Decision making under time pressure, modeled in a prospect theory framework," Organizational Behavior and Human Decision Processes, Elsevier, vol. 118(2), pages 179-188.

    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:matsoc:v:33:y:1997:i:3:p:203-226. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505565 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.