A New Concept of the Value Function

Abstract

The prospect theory's value function is usually concave for gains, commonly convex for losses, and generally steeper for losses than for gains. The neural system is quite different from the loss and gains sides. Four new studies on neurons related to this issue have examined neuronal responses to losses, gains, and reference points, respectively. The value function with a neuronal cusp could have variations and behavior cusps with catastrophe where a trader closes her position.Comment: 7 pages, 3 figure