Randomized strategies and prospect theory in a dynamic context

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• 作者：Vicky Henderson^a ; ^b ; ^{vicky.henderson@warwick.ac.uk} ; David Hobson^a ; ^{d.hobson@warwick.ac.uk} ; Alex S.L. Tse^c ; ^{S.Tse@jbs.cam.ac.uk}
• 关键词：D03 ; D81 ; G02
• 刊名：Journal of Economic Theory
• 出版年：2017
• 出版时间：March 2017
• 年：2017
• 卷：168
• 期：Complete
• 页码：287-300
• 全文大小：316 K
• 卷排序：168

文摘

When prospect theory (PT) is applied in a dynamic context, the probability weighting component brings new challenges. We study PT agents facing optimal timing decisions and consider the impact of allowing them to follow randomized strategies. In a continuous-time model of gambling and optimal stopping, Ebert and Strack (2015) show that a naive PT investor with access only to pure strategies never stops. We show that allowing randomization can significantly alter the predictions of their model, and can result in voluntary cessation of gambling.