Prospect theory and fat tails

Philip Maymin

Research output: Contribution to journalArticlepeer-review


A behavioral representative investor who evaluates a single risky asset based on cumulative prospect theory will often induce high kurtosis, negative skewness, and persistent autocorrelation into the distribution of market returns even if the asset payoffs are merely a sequence of independent coin tosses. These findings continue to hold even when the investor is simply loss averse.

Original languageEnglish (US)
Pages (from-to)187-195
Number of pages9
JournalRisk and Decision Analysis
Issue number3
StatePublished - 2009


  • Loss aversion
  • behavioral
  • fat tails
  • kurtosis
  • prospect theory

ASJC Scopus subject areas

  • Statistics and Probability
  • Finance
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty


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