We present a new model of asset prices in which investors evaluate risk according to prospect theory and examine its ability explain 23 prominent stock market anomalies. The incorporates all the elements theory, accounts for investors' prior gains losses, makes quantitative predictions about an asset's average return based on empirical estimates volatility, skewness, past capital gain. find tha...

Individual true and error theory assumes that responses by the same person to the same choice problem within a block of trials are based on the same true preferences but may show preference reversals due to random error. Between blocks, a person’s true preferences may differ or stay the same. This theory is illustrated with studies testing two critical properties that distinguish models of risk...