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SUMMARY:Randomized Strategies and Prospect Theory in a Dynamic Context - P
 rofessor David Hobson\, University of Warwick\, Department of Statistics
DTSTART:20150122T123000Z
DTEND:20150122T133000Z
UID:TALK53777@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:Cumulative prospect theory (CPT) helps explain many features o
 f individuals' attitudes to risk. But\, as observed by Barberis (2012)\, i
 n a dynamic setting the probability weighting of CPT leads to time inconsi
 stency. It also leads to another feature which has not been considered to 
 date - agents may prefer randomized strategies to pure strategies. In this
  paper we consider the impact of allowing CPT agents to follow randomized 
 strategies.\n\nIn the discrete-time\, discrete-space model of gambling in 
 a casino of Barberis (2012) we show that allowing randomized strategies le
 ads to significant value gains. In a continuous-time\, continuous-space mo
 del of Ebert and Strack (2014) we show that allowing randomization can sig
 nificantly change the predictions of the model. Ebert and Strack show that
  a naive investor with CPT preferences never chooses to stop and gambles u
 ntil the bitter end. We show that this extreme conclusion is no longer val
 id if the agent has a coin in his pocket.\n\nThis is joint work with Vicky
  Henderson and Alex Tse (Warwick)\n\n"Paper and Abstract":http://ssrn.com/
 abstract=2531457 \n\n\n\n
LOCATION: Lecture Theatre 3\, Judge Business School (http://www.jbs.cam.ac
 .uk/aboutus/location.html)
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