Shifts of Reference Points for Framing of Strategic Decisions and Changing Risk-Return Associations

Previous results on nonlinear risk-return associations, predicted by prospect theory, are replicated with mean quadratic differences instead of variance as a measure of risk. In contrast to assumptions of these studies, results with a sample from the COMPUSTAT-database provide evidence that at least a minority of firms shift to individual reference levels, which are represented here through levels of minimal risk. Further, changes of environmental conditions as an alternative explanation for switching risk-return relationships are tested against prospect theory predictions. It is shown that risk-return relationships remain stable as long as the relative position to the individual reference level is stable. This explains switching risk-return relationships better than changing environmental conditions.

• 저널Management Science · 46(1) · 63–76
• 토픽Complex Systems and Time Series Analysis · Economics and Econometrics
• DOI10.1287/mnsc.46.1.63.15130
• 저자Johannes M. Lehner