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

Myagkov, Mikhail and Plott, Charles R. (1997) Exchange Economies and Loss Exposure: Experiments Exploring Prospect Theory and Competitive Equilibria in Market Environments. American Economic Review, 87 (5). pp. 801-828. ISSN 0002-8282. https://resolver.caltech.edu/CaltechAUTHORS:20140224-161203868

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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.


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http://www.jstor.org/stable/2951326JSTORArticle
http://resolver.caltech.edu/CaltechAUTHORS:20170821-133106377Related ItemWorking Paper
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.
Group:Social Science Working Papers
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Funding AgencyGrant Number
NSFUNSPECIFIED
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Issue or Number:5
Classification Code:JEL: C91, C92, D50, D80
Record Number:CaltechAUTHORS:20140224-161203868
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20140224-161203868
Official Citation:Exchange Economies and Loss Exposure: Experiments Exploring Prospect Theory and Competitive Equilibria in Market Environments Mikhail Myagkov and Charles R. Plott The American Economic Review , Vol. 87, No. 5 (Dec., 1997) , pp. 801-828 Published by: American Economic Association Article Stable URL: http://www.jstor.org/stable/2951326
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:43961
Collection:CaltechAUTHORS
Deposited By: Susan Vite
Deposited On:25 Feb 2014 16:29
Last Modified:03 Oct 2019 06:13

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