Using these concepts, we build a model that merges both the PT and the EU paradigms. https://doi.org/10.1016/j.jeconbus.2013.01.002.
However, both psychologists mentioned above have demonstrated that the opposite is true with a series of experiments. However, prospect theory is only a descriptive model. The TATR and PATR concepts explain recent experimental findings and the observed stock price overreaction.
Copyright © 2013 Elsevier Inc. All rights reserved. ScienceDirect ® is a registered trademark of Elsevier B.V. ScienceDirect ® is a registered trademark of Elsevier B.V. ► We build a model that combines the prospect theory and the utility theory. In this study, we resolve this contradiction by introducing the concept of temporary attitude toward risk (TATR) and permanent attitude toward risk (PATR).
We show that a positive risk premium with decreasing absolute risk aversion (DARA) can be consistent with the S-shaped value function used in PT.
Prospect theory (PT), which relies on subjects’ behavior as observed in laboratory experiments, contradicts the behavior predicted by the Expected Utility (EU) paradigm. Expected utility theory is a prescriptive model.
Prospect theory and utility theory: Temporary versus permanent attitude toward risk. Prospect theory, on the other hand, provides empirical evi-dence from "several classes of choice
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