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Testing reference dependence, loss aversion and diminishing sensitivity in Spanish tourism

Author

Listed:
  • Juan L. Nicolau

    (Universidad de Alicante)

Abstract

Based on Tversky and Kahneman’s Prospect Theory, we test the existence of reference dependence, loss aversion and diminishing sensitivity in Spanish tourism. To do this, we incorporate the reference-dependent model into a Multinomial Logit Model with Random Parameters -which controls for heterogeneity- and apply it to a sample of vacation choices made by Spaniards. We find that the difference between reference price and actual price is considered to make decisions, confirming that reference dependence exists; that people react more strongly to price increases than to price decreases relative to their reference price, which represents evidence in favor of the loss aversion phenomenon; and that there is diminishing sensitivity for losses only, showing convexity for these negative values.

Suggested Citation

  • Juan L. Nicolau, 2008. "Testing reference dependence, loss aversion and diminishing sensitivity in Spanish tourism," Investigaciones Economicas, Fundación SEPI, vol. 32(2), pages 231-255, May.
    • Handle: RePEc:iec:inveco:v:32:y:2008:i:2:p:231-255
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    Citations

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    Cited by:

    1. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2017. "A theory of price adjustment under loss aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 78-95.
    2. Mellinas, Juan Pedro & Nicolau, Juan Luis, 2020. "Let's hook up fast! Hotel reviews and Wi-Fi flaws," Annals of Tourism Research, Elsevier, vol. 80(C).
    3. Hongjuan Song & Yushi Jiang, 2019. "Dynamic pricing decisions by potential tourists under uncertainty: The effects of tourism advertising," Tourism Economics, , vol. 25(2), pages 213-234, March.
    4. Egon Smeral, 2019. "Seasonal forecasting performance considering varying income elasticities in tourism demand," Tourism Economics, , vol. 25(3), pages 355-374, May.
    5. Masiero, Lorenzo & Qiu, Richard T.R., 2018. "Modeling reference experience in destination choice," Annals of Tourism Research, Elsevier, vol. 72(C), pages 58-74.
    6. Alegre, Joaquín & Sard, Maria, 2015. "When demand drops and prices rise. Tourist packages in the Balearic Islands during the economic crisis," Tourism Management, Elsevier, vol. 46(C), pages 375-385.
    7. Lucie Plzáková & Egon Smeral, 2022. "Impact of the COVID-19 crisis on European tourism," Tourism Economics, , vol. 28(1), pages 91-109, February.
    8. Rahman, Arifur & Crouch, Geoffrey I. & Laing, Jennifer H., 2018. "Tourists' temporal booking decisions: A study of the effect of contextual framing," Tourism Management, Elsevier, vol. 65(C), pages 55-68.
    9. Ulrich Gunter & Egon Smeral, 2016. "The decline of tourism income elasticities in a global context," Tourism Economics, , vol. 22(3), pages 466-483, June.
    10. Park, Sangwon & Nicolau, Juan L., 2019. "Image effect on customer-centric measures of performance," Annals of Tourism Research, Elsevier, vol. 76(C), pages 226-238.

    More about this item

    Keywords

    Prospect theory; tourism prices.;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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