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2006 | OriginalPaper | Buchkapitel

26. Experimental economics and the theory of finance

verfasst von : Haim Levy

Erschienen in: Encyclopedia of Finance

Verlag: Springer US

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Abstract

Experimental findings and in particular Prospect Theory and Cumulative Prospect Theory contradict Expected Utility Theory, which in turn may have a direct implication to theoretical models in finance and economics. We show growing evidence against Cumulative Prospect Theory. Moreover, even if one accepts the experimental results of Cumulative Prospect Theory, we show that most theoretical models in finance are robust. In particular, the CAPM is intact even if investors make decisions based on change of wealth, employ decision weights, and are risk-seeking in the negative domain.

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Vorheriges Kapitel Review of reit and MBS

Nächstes Kapitel Merger and acquisition: Definitions, motives, and market responses

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Titel: Experimental economics and the theory of finance
verfasst von: Haim Levy
Verlag: Springer US
Buch: Encyclopedia of Finance
Print ISBN: 978-0-387-26284-0

Electronic ISBN: 978-0-387-26336-6

Copyright-Jahr: 2006
DOI: https://doi.org/10.1007/978-0-387-26336-6_52