“Many economic and financial decisions depend crucially on their timing. People decide when to invest in a project, when to liquidate assets, or when to stop gambling in a casino. We provide a general result on prospect theory decision makers who are unaware of the time-inconsistency induced by probability weighting. If a market offers a sufficiently rich set of investment strategies, then such naive investors postpone their decisions until forever. We illustrate the drastic consequences of this “never stopping” result, and conclude that probability distortion in combination with naivité leads to unrealistic predictions for a wide range of dynamic setups.”″
“Many economic and financial decisions depend crucially on their timing. People decide when to invest in a project, when to liquidate assets, or when to stop gambling in a casino. We provide a general result on prospect theory decision makers who are unaware of the time-inconsistency induced by probability weighting. If a market offers a sufficiently rich set of investment strategies, then such naive investors postpone their decisions until forever. We illustrate the drastic consequences of this “never stopping” result, and conclude that probability distortion in combination with naivité leads to unrealistic predictions for a wide range of dynamic setups.”″