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Title:Prospect theory and two moment model: the firm under price uncertainty PDF Logo
Authors:Broll, Udo
Egozcue, Martín
Wong, Wing-Keung
Issue Date:2009
Series/Report no.:Dresden discussion paper series in economics 01/09
Abstract:Within the prospect theory the paper examines production and hedging decisions of a competitive firm under price uncertainty. We consider the prospect theory for the firm's utility function in the two moment model known as (mu,sigma)-preference. In contrast to the literature our findings show that the production under uncertainty can be larger than in the certainty case. Furthermore, we demonstrate that although the futures markets are unbiased the firm is overhedging.
Subjects:Prospect theory, mean-variance model, price uncertainty
JEL:D21
D41
D81
Document Type:Working Paper
Appears in Collections:Dresden Discussion Paper Series in Economics, Faculty of Business and Economics, TU Dresden

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