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A value function that explains the magnitude and sign effects

By Ali al-Nowaihi and Sanjit Dhami

Abstract

Loewenstein and Prelec (1992) explain the 'magnitude effect' and the 'sign effect', respectively, by using increasing elasticity of the value function and a higher elasticity for losses as compared to gains. We provide a value function with these two properties.Anomalies of the exponentially discounted utility model The magnitude effect The sign effect SIE value functions

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