The loss aversion / narrow framing approach to the equity premium puzzle
By: Nicholas Barberis, Ming Huang
Contributors: Huang, Ming; National Bureau of Economic Research
Series: NBER working paper series -- working paper 12378; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12378.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "We review a recent approach to understanding the equity premium puzzle.  The key elements of this approach are loss aversion and narrow framing, two well-known features of decision-making under risk in experimental settings.  In equilibrium, models that incorporate these ideas can generate a large equity premium and a low and stable risk-free rate, even when consumption growth is smooth and only weakly correlated with the stock market.  Moreover, they can do so for parameter values that correspond to sensible attitudes to independent monetary gambles.  We conclude by suggesting some possible directions for future research"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/26/2006.

Includes bibliographical references.

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