Modeling household behavior under prospect theory type preferences

The aim of this research project is to model a number of household's decisions under prospect theory type preferences and to examine in addition a household’s behavior under different tax policies. The topic of this research belongs to the (interdisciplinary) field of behavioral economics where in addition to rationality (the core assumption of the mainstream expected utility theory) also some psychological aspects are taken into account. These to some extent contribute to the explanation of some phenomena in financial markets which could not be justified by the traditional expected utility theory, such as: the endowment effect, the equity premium puzzle, the disposition effect (the tendency of investors to sell stocks whose price has increased too soon, while keeping assets that have dropped in value too long – a feature observed in the late financial crises), and widely popular insurance portfolios.

Publications

J. Hlouskova, P. Tsigaris, (2016) “The role of the marginal rate of substitution of wealth for a loss averse investor”, Economics Bulletin, Vol. 36/4, pp. 2250-2260

J. Hlouskova, I. Fortin, P. Tsigaris, (2017) “The consumption-investment decision of a prospect theory household: A two-period model”, Journal of Mathematical Economics, Vol. 70, pp. 74-89

J. Hlouskova, I. Fortin, P. Tsigaris, (2019) “The consumption-investment decision of a prospect theory household: A two-period model with an endogenous second period reference level”, Journal of Mathematical Economics, Vol. 85, pp. 93-108

J. Hlouskova, P. Tsigaris, “A behavioral economic approach to multiple job holdings with leisure”, IHS Working Paper Series 23, September 2020

J. Hlouskova, P. Tsigaris, (2021) “Capital income taxation under full loss offset provisions of a prospect theory investor”, Public Finance and Management, Special Issue on Behavioral Public Finance, Vol. 20/1, pp. 46-88

I. Fortin, J. Hlouskova, (2024) “Prospect theory and asset allocation”, Quarterly Review of Economics and Finance, Vol. 94, pp. 214-240

Interview:

“The curse of comparison”, January 2023, in Scilog – the Magazine of the Austrian Science Fund (FWF)

Seminar Presentations

“The consumption-investment decision of a prospect theory household: A two-period model with an endogenous second period reference level”, presented in the research seminar at Institute for Advanced Studies (IHS) in January 2019 and at the Economic University, Faculty of National Economy in Bratislava, in February 2022