A theory of reference-dependent behavior
AbstractExtensive field and experimental evidence in a variety of environments show that behavior depends on a reference point. This paper provides an axiomatic characterization of this dependence. We proceed by imposing gradually more structure on both choice correspondences and preference relations, requiring increasingly higher levels of rationality, and freeing the decision-maker from certain types of inconsistencies. The appropriate degree of behavioral structure will depend on the phenomenon that is to be modeled. Lastly, we provide two applications of our work: one to model the status-quo bias, and another to model addictive behavior.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1056.
Date of creation: Oct 2007
Date of revision:
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Web page: http://www.econ.upf.edu/
Individual rationality; reference-dependence; rationalization; path independence; status-quo bias; addiction; habit formation; LeeX;
Other versions of this item:
- José Apesteguía & Miguel A. Ballester, 2004. "A Theory Of Reference-Dependent Beavior," Documentos de Trabajo - Lan Gaiak Departamento de EconomÃa - Universidad PÃºblica de Navarra 0402, Departamento de Economía - Universidad Pública de Navarra.
- Jose Apesteguia & Miguel A. Ballester, 2007. "A Theory of Reference-Dependent Behavior," Working Papers 323, Barcelona Graduate School of Economics.
- A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-03 (All new papers)
- NEP-CBE-2007-11-03 (Cognitive & Behavioural Economics)
- NEP-EVO-2007-11-03 (Evolutionary Economics)
- NEP-EXP-2007-11-03 (Experimental Economics)
- NEP-HPE-2007-11-03 (History & Philosophy of Economics)
- NEP-ICT-2007-11-03 (Information & Communication Technologies)
- NEP-UPT-2007-11-03 (Utility Models & Prospect Theory)
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