Journal
JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volume 162, Issue -, Pages 106-119Publisher
ELSEVIER
DOI: 10.1016/j.jebo.2019.04.017
Keywords
Prospect theory; Loss aversion; Hierachical Bayes methods
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Funding
- UK government Commonwealth Scholarship
- University of Cape Coast
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Parameteric identification of loss aversion requires either the imposition of rotational symmetry on the utility function or a point dependent normalization condition. In this paper, we propose a new approach in which point dependence is reduced by integration over normalization points. To illustrate our approach, we consider a sample of Ghanaian farmers' risk preferences over the gain, loss and mixed domains. Using Bayesian econometric methods, we find support for Prospect Theory albeit with substantial behavioral variation across individuals plus mild overweighting of losses compared to gains. We also show that the majority of respondents are mildly loss averse especially as the size of the payoffs increase. (C) 2019 Elsevier B.V. All rights reserved.
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