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Title: Increasing elasticity of the value function in the Loewenstein-Prelec Theory of intertemporal choice
Authors: al-Nowaihi, Ali
Dhami, Sanjit
First Published: Oct-2007
Publisher: Dept. of Economics, University of Leicester
Abstract: In a critique of the Loewenstein and Prelec (1992) theory of intertemporal choice, al-Nowaihi and Dhami (2006) point out to four errors. One of the alleged errors was that the value function in prospect theory is decreasing. But it is in fact increasing. We provide a correction and a formal proof. As a corollary, we show that the elasticity of the value function is bounded between zero and one. Nevertheless, all the remaining points in al-Nowaihi and Dhami (2006) remain valid.
Series/Report no.: Papers in Economics
Type: Report
Appears in Collections:Reports, Dept. of Economics

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