Testing for Reference Dependence: An Application to the Art Market
AbstractThis paper tests for reference dependence, using data from Impressionist and Contemporary Art auctions. We distinguish reference dependence based on ‘rule of thumb’ learning from reference dependence based on ‘rational’ learning. Furthermore, we distinguish pure reference dependence from effects due to loss aversion. Thus, we use actual market data to test essential characteristics of Kahneman and Tversky’s Prospect Theory. The main methodological innovations of this paper are firstly, that reference dependence can be identified separately from loss aversion. Secondly, we introduce a consistent non-linear estimator to deal with measurement errors problems involved in testing for loss aversion. In this dataset, we find strong reference dependence but no loss aversion.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4982.
Date of creation: Apr 2005
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Other versions of this item:
- Alan Beggs & Kathryn Graddy, 2005. "Testing for Reference Dependence: An Application to the Art Market," Economics Series Working Papers 228, University of Oxford, Department of Economics.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-CUL-2005-06-14 (Cultural Economics)
- NEP-ECM-2005-06-14 (Econometrics)
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