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Endogenizing Prospect Theory's Reference Point

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  • Ulrich Schmidt
  • Horst Zank

Abstract

In previous models of (cumulative) prospect theory reference-dependence of preferences is imposed beforehand and the location of the reference point is exogenously determined. This note provides a foundation of prospect theory, where reference-dependence is derived from preference conditions and a unique reference point arises endogenously

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1611.

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Length: 16 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:kie:kieliw:1611

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Keywords: Prospect theory; reference point; diminishing sensitivity; loss aversion;

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Cited by:
  1. Xu, Hongli & Lou, Yingyan & Yin, Yafeng & Zhou, Jing, 2011. "A prospect-based user equilibrium model with endogenous reference points and its application in congestion pricing," Transportation Research Part B: Methodological, Elsevier, vol. 45(2), pages 311-328, February.

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