@article{448,
  author = {Markus Brunnermeier},
  title = {Learning to Reoptimize Consumption at New Income Levels: A Rationale for Prospect Theory},
  abstract = { <p>This paper provides a theoretical rationale for three experimental results of Prospect Theory: risk preferences are over gains and losses, loss aversion, and diminishing sensitivity. We consider a (boundedly rational) decision maker who does not find her new optimal consumption bundle with certainty when she is faced with a new income level. This alters her indirect utility function and makes her more risk averse at her current reference income level and less risk averse for a range of incomes below her reference income level.</p> },
  year = {2004},
  journal = {Journal of the European Economic Association},
  volume = {2},
  number = {1},
  pages = {98-114},
  note = {<p>Rationalizes three elements of Prospect Theory.</p>},
  language = {eng},
}