Piecewise Continuous Cumulative Prospect Theory and Piecewise Continuous Hedonic Framing
University of Braunschweig - Institute of Technology, Department of Finance
affiliation not provided to SSRN
November 28, 2011
We extend the continuous Cumulative Prospect Theory by considering piecewise continuous distributions with a finite number of jump discontinuities. Such distributions always occur when outcomes depend on continuously distributed random variables and the dependency is defined by a piecewise continuous function. In addition, we expand the model with a piecewise continuous version of hedonic framing which is, until now, only available in a discrete model setting. Finally, we show how to apply the model to a broad class of piecewise continuous outcome functions.
Number of Pages in PDF File: 27
Keywords: Continuous Cumulative Prospect Theory, Continuous Hedonic Framing, Piecewise Continuous Distributions
JEL Classification: D81working papers series
Date posted: November 29, 2011 ; Last revised: June 26, 2012
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