TY - JOUR
T1 - Learning to reoptimize consumption at new income levels
T2 - A rationale for prospect theory
AU - Brunnermeier, Markus K.
PY - 2004/3
Y1 - 2004/3
N2 - This paper provides a theoretical rationale for three experimental results of Prospect Theory: risk preferences are over gains and losses, loss aversion, and diminishing sensitivity. We consider a (boundedly rational) decision maker who does not find her new optimal consumption bundle with certainty when she is faced with a new income level. This alters her indirect utility function and makes her more risk averse at her current reference income level and less risk averse for a range of incomes below her reference income level.
AB - This paper provides a theoretical rationale for three experimental results of Prospect Theory: risk preferences are over gains and losses, loss aversion, and diminishing sensitivity. We consider a (boundedly rational) decision maker who does not find her new optimal consumption bundle with certainty when she is faced with a new income level. This alters her indirect utility function and makes her more risk averse at her current reference income level and less risk averse for a range of incomes below her reference income level.
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U2 - 10.1162/154247604323015490
DO - 10.1162/154247604323015490
M3 - Article
AN - SCOPUS:33745009819
SN - 1542-4766
VL - 2
SP - 98
EP - 114
JO - Journal of the European Economic Association
JF - Journal of the European Economic Association
IS - 1
ER -