Randomized strategies and prospect theory in a dynamic context

• 成果类型: Article
• 署名作者: Henderson, Vicky; Hobson, David; Tse, Alex S. L.
• 署名单位: University of Warwick; University of Oxford; University of Cambridge
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2017.01.003
• 发表日期: 2017
• 页码: 287-300
• 关键词: Behavioral economics; prospect theory; probability weighting; Randomized strategies

摘要

When prospect theory (PT) is applied in a dynamic context, the probability weighting component brings new challenges. We study PT agents facing optimal timing decisions and consider the impact of allowing them to follow randomized strategies. In a continuous-time model of gambling and optimal stopping, Ebert and Strack (2015) show that a naive PT investor with access only to pure strategies never stops. We show that allowing randomization can significantly alter the predictions of their model, and can result in voluntary cessation of gambling. (C) 2017 Elsevier Inc. All rights reserved.