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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 228.
Date of creation: 01 Mar 2005
Date of revision:
Reference Dependence; Loss Aversion; Prospect Theory; Art; Auctions;
Other versions of this item:
- Beggs, Alan & Graddy, Kathryn, 2005. "Testing for Reference Dependence: An Application to the Art Market," CEPR Discussion Papers 4982, C.E.P.R. Discussion Papers.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
- NEP-CUL-2006-03-18 (Cultural Economics)
- NEP-ECM-2006-03-18 (Econometrics)
- NEP-UPT-2006-03-18 (Utility Models & Prospect Theory)
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