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Testing for Reference Dependence: An Application to the Art Market Author info | Abstract | Publisher info | Download info | Related research | Statistics Alan Beggs
Kathryn Graddy
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This 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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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number
228.
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Date of creation: 2005Date of revision:
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Keywords: Reference Dependence Loss Aversion Prospect Theory Art Auctions Other versions of this item:
Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty D44 - Microeconomics - - Market Structure and Pricing - - - Auctions L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
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