Yesterday's expectation of tomorrow determines what you do today: The role of reference-dependent utility from expectations
AbstractThe paper introduces the concept of adjustment utility, that is, reference-dependent utility from expectations. It offers an explanation for observed preferences that cannot be explained with existing models, and yields new predictions for individual decision making. The model gives a simple explanation for, e.g., why people are reluctant to change their plans even when these turn out to be unexpectedly costly; people's aversion towards positive but false information, which cannot be explained with previous models; and the increasing acceptance of risks when people get used to them.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2008-003.
Date of creation: 15 Jan 2008
Date of revision:
utility; expectations; reference-dependent preferences; anticipation; prospect theory; experiments;
Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-26 (All new papers)
- NEP-CBA-2008-01-26 (Central Banking)
- NEP-CBE-2008-01-26 (Cognitive & Behavioural Economics)
- NEP-EVO-2008-01-26 (Evolutionary Economics)
- NEP-EXP-2008-01-26 (Experimental Economics)
- NEP-UPT-2008-01-26 (Utility Models & Prospect Theory)
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- Quang Nguyen, 2011. "Does nurture matter: Theory and experimental investigation on the effect of working environment on risk and time preferences," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 245-270, December.
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