Henderson, V;
Hobson, D;
Tse, ASL;
(2017)
Randomized strategies and prospect theory in a dynamic context.
Journal of Economic Theory
, 168
pp. 287-300.
10.1016/j.jet.2017.01.003.
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Abstract
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.
| Type: | Article |
|---|---|
| Title: | Randomized strategies and prospect theory in a dynamic context |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1016/j.jet.2017.01.003 |
| Publisher version: | https://doi.org/10.1016/j.jet.2017.01.003 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Social Sciences, Economics, Business & Economics, Behavioral economics, Prospect theory, Probability weighting, Randomized strategies |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Mathematics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10137460 |
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