| Abstract |
Levy and Levy (Management Science, 2002) present data that, according to their claims, violate prospect theory. They suggest that prospect theoryys hypothesis of an S-shaped value function, concave for gains and convex for losses, is incorrect. However, all of the data of Levy and Levy are perfectly consistent with the predictions of prospect theory, as can be verified by simply applying prospect theory formulas. The mistake of Levy and Levy is that they, incorrectly, thought that probability weighting could be ignored.
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