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A Cross-Cultural Study of Reference Point Adaptation: Evidence from the China, Korea, and the US

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Author Info
Arkes, Hal
Hirshleifer, David
Jiang, Danling
Lim, Sonya

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Abstract

We examined reference point adaptation following gains or losses in security trading using participants from China, Korea, and the US. In both questionnaire studies and trading experiments with real money incentives, reference point adaptation was larger for Asians than for Americans. Subjects in all countries adapted their reference points more after a gain than after an equal-sized loss. When we introduced a forced sale intervention that highlighted a prior price change, Americans showed greater adaptation toward the new price, whereas Asians showed less adaptation. We offer possible explanations both for the cross-cultural similarities and the cross-cultural differences.

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File URL: http://mpra.ub.uni-muenchen.de/9863/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4009.

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Date of creation: 09 Jul 2007
Date of revision: 04 Aug 2008
Handle: RePEc:pra:mprapa:4009

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Related research
Keywords: Prospect theory; cross-cultural differences; reference point adaptation; mental accounting; security trading;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Strahilevitz, Michal A & Loewenstein, George, 1998. " The Effect of Ownership History on the Valuation of Objects," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 25(3), pages 276-89, December.
  2. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  3. Lei Feng & Mark Seasholes, 2005. "Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?," Review of Finance, Springer, vol. 9(3), pages 305-351, 09. [Downloadable!] (restricted)
  4. repec:rus:hseeco:278562 is not listed on IDEAS
  5. Mark Grinblatt & Matti Keloharju, 2000. "What Makes Investors Trade?," Yale School of Management Working Papers ysm146, Yale School of Management. [Downloadable!]
    Other versions:
  6. Shefrin, Hersh & Statman, Meir, 1985. " The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-90, July. [Downloadable!] (restricted)
  7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  8. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February. [Downloadable!] (restricted)
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  9. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, vol. 82(5), pages 1120-41, December. [Downloadable!] (restricted)
  10. Arkes, Hal & Hirshleifer, David & Jiang, Danling & Lim, Sonya, 2006. "Reference Point Adaptation: Tests in the Domain of Security Trading," MPRA Paper 4259, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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