A characterization of S-shaped utility functions displaying loss aversion

Abstract

This paper deals with utility (or value) function for reference dependent models. A new characterization of S-shaped utility functions displaying loss aversion is put forward. Then it is used to analyze some standard forms commonly used in the literature. It is shown that, unless some parameters' restrictions are imposed, power and exponential S-shaped utilities can lead to prefer fair symmetric games to the status quo and do not display loss aversion. Finally two new examples of simple S-shaped utility functions exhibiting loss aversion are presented.