One of the most striking portfolio puzzles is the “disposition effect”: the tendency of individuals to sell stocks in their portfolios that have risen in value since purchase, rather than fallen in value. Perhaps the most prominent explanation for this puzzle is based on prospect theory. Despite its prominence, this explanation has received little formal scrutiny. We take up this task, and anal...

Among psychologists and economists, prospect theory continues to be one of the most popular models of decision making. The theory’s key property is reference dependence; specifically, how an individual’s perception of loss or gain is dependent upon their starting point (i.e., the status quo). Although prospect theory is widely accepted, other authors have sought the inclusion of reference point...

Using experimental data on choices between pairs of lotteries, we compare a new parameterized Quantum Decision Theory (QDT) with Rank Dependent Utility (RDU) and Cumulative Prospect (CPT). At the aggregate level, CPT-based QDT outperforms. individual considerable heterogeneity across subjects is best described by RDU-based QDT, at odds conclusion using representative agent approach. The quantum...

753 National Tax Journal Vol. LII, No. 4 Abstract While obligatory advance tax payments do not interfere with the taxpayer’s evasion decision under expected utility theory, they do affect the decision to evade under prospect theory. The present paper applies prospect theory to a simple model of tax evasion, exploring the role that advance tax payments may play in enforcing tax laws. The paper d...