Exchange Economies and Loss Exposure: Experiments Exploring Prospect Theory and Competitive Equilibria in Market Environments

Creators: Myagkov, Mikhail; Plott, Charles R.

Style

An error occurred while generating the citation.

Abstract

Exchange economies were created in which individuals faced losses. If people are risk seeking in the losses, as predicted by prospect theory, then due to the nonconvexity, the competitive equilibria are all on the boundaries of the Edgeworth Box. The experimental results are that risk-seeking behavior is observed in many people and appears in markets as predicted. In addition, market behavior is consistent with answers to hypothetical questionnaires. Contrary to prospect theory, risk seeking seems to diminish with experience: preferences in the market setting are not labile; and risk-seeking preferences are not simply a result of framing effects.

Additional Information

© 1997 American Economic Association. The research funding of the National Science Foundation is gratefully acknowledged, as is the support by the Caltech Laboratory for Experimental Economics and Political Science. The authors wish to thank Donald Brown, whose insights lead to the designing of these experiments. In addition, the author wishes to thank Colin Camerer, Timothy Cason, David Grether, Daniel Kahneman, Richard Thaler, and Amos Tversky for their comments on this, and many closely related subjects.

Attached Files

Published - exchange_economies_and_loss_exposure.pdf

Files

exchange_economies_and_loss_exposure.pdf

Files (802.6 kB)

Name	Size	Download all
exchange_economies_and_loss_exposure.pdf md5:1e180277092f25473d590381fe9c2ce7	802.6 kB	Preview Download

Additional details

	All versions	This version
Views	0	0
Downloads	0	0
Data volume	0 Bytes	0 Bytes