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Working Paper

Endogenizing Prospect Theory's Reference Point

Authors

  • Schmidt
  • U.
  • Zank
  • H.

Publication Date

JEL Classification

D81

Key Words

diminishing sensitivity

loss aversion

prospect theory

reference point

In previous models of (cumulative) prospect theory reference-dependence of preferences is imposed beforehand and the location of the reference point is exogenously determined. This note provides a foundation of prospect theory, where reference-dependence is derived from preference conditions and a unique reference point arises endogenously.

Kiel Institute Expert

  • Prof. Dr. Dr. Ulrich Schmidt
    Research Director

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