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Shift of reference point and implications on behavioral reaction to gains and losses

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  • Lorenzo Masiero

    ()
    (Istituto Ricerche Economiche (IRE), Università della Svizzera Italiana, Svizzera)

  • David A. Hensher

    ()
    (Institute of Transport and Logistics Studies (ITLS), The University of Sydney, Australia)

Abstract

It is widely recognized that individual decision making is subject to the evaluation of gains and losses around a reference point. The estimation of discrete choice models increasingly use data from stated choice experiments which are pivoted around a reference alternative. However, to date, the specification of a reference alternative in transport studies is fixed, whereas it is common to observe individuals adjusting their preferences according to a change in their reference point. This paper focuses on individual reactions, in a freight choice context, to a negative change in the reference alternative values, identifying the behavioural implications in terms of loss aversion and diminishing sensitivity. The results show a significant adjustment in the valuation of gains and losses around a shifted reference alternative. In particular, we find an average increase in loss aversion for cost and time attributes, and a substantial decrease for punctuality. These findings are translated to significant differences in the willingness to pay and willingness to accept measures, providing supporting evidence of respondents’ behavioural reaction.

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Bibliographic Info

Paper provided by USI Università della Svizzera italiana in its series Quaderni della facoltà di Scienze economiche dell'Università di Lugano with number 1005.

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Length: 20 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:lug:wpaper:1005

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Web page: https://www.bul.sbu.usi.ch

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Keywords: Willingness to pay; gains and losses; freight choice; reference alternative;

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References

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Citations

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Cited by:
  1. Stephane Hess & Amanda Stathopoulos & Andrew Daly, 2012. "Allowing for heterogeneous decision rules in discrete choice models: an approach and four case studies," Transportation, Springer, vol. 39(3), pages 565-591, May.
  2. McNair, Ben J. & Bennett, Jeff & Hensher, David A., 2010. "A comparison of responses to single and repeated discrete choice questions," MPRA Paper 23163, University Library of Munich, Germany.
  3. Stathopoulos, Amanda & Hess, Stephane, 2012. "Revisiting reference point formation, gains–losses asymmetry and non-linear sensitivities with an emphasis on attribute specific treatment," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(10), pages 1673-1689.
  4. Amanda Stathopoulos & Stephane Hess, 2011. "Referencing, Gains-Losses Asymmetry And Non-Linear Sensitivities In Commuter Decisions: One Size Does Not Fit All!," Working Papers 0511, CREI Università degli Studi Roma Tre, revised 2011.

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