Editing Equity premium puzzle (section)

=== Individual characteristics ===

Some explanations rely on assumptions about individual behavior and preferences different from those made by Mehra and Prescott. Examples include the [[prospect theory]] model of Benartzi and Thaler (1995) based on [[loss aversion]].<ref>{{cite journal |last1=Benartzi |first1=S. |last2=Thaler |first2=R. H. |title=Myopic Loss Aversion and the Equity Premium Puzzle |journal=The Quarterly Journal of Economics |date=1 February 1995 |volume=110 |issue=1 |pages=73–92 |doi=10.2307/2118511 |jstor=2118511 |s2cid=55030273 |url=http://www.nber.org/papers/w4369.pdf }}</ref> A problem for this model is the lack of a general model of portfolio choice and [[asset valuation]] for [[prospect theory]].

A second class of explanations is based on relaxation of the optimization assumptions of the standard model. The standard model represents consumers as continuously-optimizing dynamically-consistent expected-utility maximizers. These assumptions provide a tight link between attitudes to risk and attitudes to variations in [[intertemporal consumption]] which is crucial in deriving the equity premium puzzle. Solutions of this kind work by weakening the assumption of continuous optimization, for example by supposing that consumers adopt [[satisficing]] rules rather than optimizing. An example is [[info-gap decision theory]],<ref>Yakov Ben-Haim, ''Info-Gap Decision Theory: Decisions Under Severe Uncertainty,'' Academic Press, 2nd edition, Sep. 2006. {{ISBN|0-12-373552-1}}.</ref> based on a non-probabilistic treatment of uncertainty, which leads to the adoption of a robust satisficing approach to asset allocation.