On the potential for observational equivalence in experiments on risky choice when a power utility function is assumed

Peel, David and Zhang, Jie (2012) On the potential for observational equivalence in experiments on risky choice when a power utility function is assumed. Economics Letters, 116 (1). pp. 8-10. ISSN 0165-1765

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Abstract

We demonstrate theoretically and illustrate the implications of assuming power utility when the true function is of the expo-power form. Empirical results can appear to be consistent with cumulative prospect theory when they are in fact generated from a Markowitz model.