Suchergebnisse

Using actual probabilities of audit and penalty rates, the return on evasion is 91–98%. So why do not most of us evade? Existing analysis, based on expected utility theory (EUT) is unable to explain this. Furthermore, and contrary to intuition and the bulk of evidence, EUT predicts that evasion should be decreasing in the tax rate (Yitzhaki puzzle). We apply Tversky and Kahneman's [Tversky, A., Kahneman, D., 1992. Advances in prospect theory: cumulative representation of uncertainty. Journal of Risk and Uncertainty 5, 297–323] cumulative prospect theory to tax evasion. We show that prospect theory provides a much more satisfactory account of tax evasion including an explanation of the Yitzhaki puzzle. This also provides independent confirmation of prospect theory.

Skewness of return has been suggested as a reason why agents might choose to gamble, ceteris paribus, in Cumulative Prospect Theory (CPT). We investigate the relationship between moments of return in two models where agents choices over uncertain outcomes are determined as in CPT. We illustrate via examples that in CPT theory, as with expected utility theory, propositions that agents have a preference for skewness may be invalid.

In this paper, we develop a consumption-based asset pricing model motivated by prospect theory, where habit formation determines the endogenous reference point. This exploits the similarity between habit formation and prospect theory. Both emphasize that the investor does not care about the absolute amount of gain or loss, but rather compares the gain or the loss experienced to a benchmark. The results show that when taking people's loss averse attitude over consumption into consideration, our model is capable of resolving the equity premium puzzle.