What is it about?
Loss aversion leads to a V-shaped pattern in risk taking behavior. Reference point adaptation weakens the loss aversion effect and also shapes it into an asymmetric pattern.
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Why is it important?
Reference point should be dynamic. We update our reference point through our personal trading experience. Whether and how this reference point adaptation affect our trading behaviours is an important issue.
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This page is a summary of: Dynamic Trading with Reference Point Adaptation and Loss Aversion, Operations Research, August 2015, INFORMS,
DOI: 10.1287/opre.2015.1399.
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