The loss aversion / narrow framing approach to the equity premium puzzle
by Nicholas Barberis
"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.
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The loss aversion / narrow framing approach to the equity premium puzzle
2006, National Bureau of Economic Research
electronic resource /
in English
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Edition Notes
Title from PDF file as viewed on 7/26/2006.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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