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I n our last research page we had focussed on benchmarks as well as compensation rules by arguing that a more realistic behavioural framework has to be assumed for benchmarks to be rationalized. As a reminder, Admati and Pfleiderer (1997) had shown that there doesnt exist a benchmark that can be rationalized within the Expected Utility framework. Also, a realistic description of individuals behaviour is provided by the Behavioural Economics Literature. In that respect, a consensus seems to have emerged around the Kahneman and Tversky (1992, 1979) type of preferences.
This representation implies three dimensions. First, individuals evaluate the gains and losses of a risky prospect with respect to a subjective reference value. It could be the expected...
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