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Estimating the reference frame: A smooth twice-differentiable utility function for non-compensatory loss-averse decision-making

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  • Bahamonde-Birke, Francisco J.

Abstract

Since the introduction of prospect theory, reference-dependence and loss-aversion have become widely acknowledged as important elements affecting decision-making. Nevertheless, establishing and determining reference frames are not extensively analyzed in the literature; rather, in most applications, it is simply assumed that the reference frames can be represented through the status quo. This assumption, however, may lead to biased results, as not only the status quo affects reference frames, but also previous experiences or expectations, among many others.

Suggested Citation

  • Bahamonde-Birke, Francisco J., 2018. "Estimating the reference frame: A smooth twice-differentiable utility function for non-compensatory loss-averse decision-making," Journal of choice modelling, Elsevier, vol. 28(C), pages 71-81.
    • Handle: RePEc:eee:eejocm:v:28:y:2018:i:c:p:71-81
    DOI: 10.1016/j.jocm.2018.03.002
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