Preferences with frames: A new utility specification that allows for the framing of risks

Nicholas Barberis (First Author), Ming Huang (Participant Author)

    Research output: Contribution to journalJournal

    37 Citations (Web of Science)

    Abstract

    Experiments on decision-making show that, when people evaluate risk, they often engage in "narrow framing": that is, in contrast to the prediction of traditional utility functions defined over wealth or consumption, they often evaluate risks in isolation, separately from other risks they are already facing. While narrow framing has many potential real-world applications, there are almost no tractable preference specifications that incorporate it into the standard framework used by economists. In this paper, we propose such a specification and demonstrate its tractability in both portfolio choice and equilibrium settings.
    Original languageEnglish
    Pages (from-to)1555-1576
    JournalJournal of Economic Dynamics and Control
    Volume33
    Issue number8
    DOIs
    Publication statusPublished - 2009

    Keywords

    • Diversification
    • Equity premium
    • Framing
    • Stock market participation

    Indexed by

    • ABDC-A*
    • Scopus
    • SSCI

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