Risk-neutral firms can extract unbounded profits from consumers with prospect theory preferences

DOI10.1016/J.JET.2012.01.002MaRDI QIDQ417637zbMATH OpenOpenAlexFDO

Authors Eduardo M. Azevedo, Daniel Gottlieb

Publication date 14 May 2012

Published in Journal of Economic Theory (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/j.jet.2012.01.002

zbMATH Keywords

equilibrium existenceprospect theorydutch booksinsurance markets

Mathematics Subject Classification ID

Individual preferences (91B08) Consumer behavior, demand theory (91B42)

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Cites work

• A model of reference-dependent preferences
• Advances in prospect theory: cumulative representation of uncertainty
• Cumulative prospect theory and the St. Petersburg paradox
• Curvature of the Probability Weighting Function
• Le Comportement de l'Homme Rationnel devant le Risque: Critique des Postulats et Axiomes de l'Ecole Americaine
• Nonlinear Decision Weights in Choice Under Uncertainty
• Parameter-Free Elicitation of Utility and Probability Weighting Functions
• Preferences with frames: A new utility specification that allows for the framing of risks
• Prospect Theory: An Analysis of Decision under Risk
• Risk, ambiguity and the Savage axioms
• The Probability Weighting Function
• Violations of the betweenness axiom and nonlinearity in probability

Cited in

(8)

• Preferences over rich sets of random variables: on the incompatibility of convexity and semicontinuity in measure
• Optimal exit time from casino gambling: strategies of precommitted and naive gamblers
• Risk-robust mechanism design for a prospect-theoretic buyer
• Lack of prevalence of the endowment effect: an equilibrium analysis
• Efficient regulated entry in competitive markets with demand uncertainty
• Randomized strategies and prospect theory in a dynamic context
• Strategic framing to influence clients' risky decisions
• Arrow-Debreu equilibria for rank-dependent utilities

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