Prospect theory in multiple price list experiments: further insights on behaviour in the loss domain (Q6039545)

This paper examines the estimation of the parameters that control the curvature of the value function and the shape of the probability weighting function in prospect theory. The simplifying assumption of equality of the parameters for the gain domain and for the loss domain in the context of risk elicitation based on multiple price lists. A series of within-subject risk experiments on a sample of students is reported. It is verified that subjects' behaviour for gains is mostly reflected for losses at the aggregate and individual levels, and is consistent with the distinctive prospect theory fourfold pattern. Such reflection is only partial as the mean curvature of the value function is slightly less convex for losses than it is concave for gains. On the contrary, no statistically significant difference is found in the weighting functions of the two domains. Robustness on the size of the lottery stakes is also checked and the results are shown to be robust to a high-stake context. It is demonstrated that assuming reflection can have important consequences on loss-aversion measures. It is observed a negative pure loss-frame effect on elicited loss aversion.