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Even (Mixed) Risk Lovers are Prudent: Comment

Sebastian Ebert
American Economic Review 2013 103(4), 1536-1537
Crainich, Eeckhoudt, and Trannoy (2013) show that mixed risk lovers are prudent. I show that common risk loving utility functions may not exhibit mixed risk loving—as is typical for risk aversion and mixed risk aversion—and thus these traits should be carefully distinguished. In particular, risk lovers may be imprudent.

Until the Bitter End: On Prospect Theory in a Dynamic Context

Sebastian Ebert; Philipp Strack
American Economic Review 2015 105(4), 1618-1633
We provide a result on prospect theory decision makers who are naïve about the time inconsistency induced by probability weighting. If a market offers a sufficiently rich set of investment strategies, investors postpone their trading decisions indefinitely due to a strong preference for skewness. We conclude that probability weighting in combination with naïveté leads to unrealistic predictions for a wide range of dynamic setups.