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Contribution Details
Type | Conference Presentation |
Scope | Contributions to practice |
Title | Loss Aversion with a State-Dependent Reference Point |
Organization Unit | |
Authors |
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Presentation Type | speech |
Item Subtype | Original Work |
Refereed | Yes |
Status | Published in final form |
Language |
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Event Title | North American Winter Meeting of the Econometric Society |
Event Type | conference |
Event Location | San Francisco, USA |
Event Start Date | January 4 - 2009 |
Event End Date | January 4 - 2009 |
Abstract Text | This study investigates reference-dependent choice with a stochastic, state-dependent reference point. The optimal reference-dependent solution equals the optimal consumption solution (no loss aversion) if the reference point is selected fully endogenously. Given that loss aversion is widespread, we conclude that the reference point generally includes an important exogenously fixed component. We develop a choice model in which adjustment costs can cause stickiness relative to an initial, exogenous reference point. Using historical US investment benchmark data, we show that this model is consistent with diversification across bonds and stocks for a wide range of evaluation horizons, despite the historically high risk premium of stocks compared to bonds. |
Official URL | http://papers.ssrn.com/sol3/papers.cfm?abstract_id=979854 |
Export | BibTeX |
Additional Information | SFI Research Paper Nr. 07-14 |