reports most seriously. As a possible evaluation period, one year is at least
highly plausible.
There are two reasonable questions to ask about these results. Which as-
pects of prospect theory drive the results, and how sensitive are the results
to alternative specifications? The answer to the first question is that loss
aversion is the main determinant of the outcomes. The specific functional
forms of the value function and weighting functions are not critical. For ex-
ample, if the weighting function is replaced by actual probabilities, the
evaluation period for which bonds have the same prospective utility as
stocks falls from eleven–twelve months to ten months. Similarly, if actual
MYOPIC LOSS AVERSION 211
Figure 6.1. Prospective utility as function of the evaluation period.