Advanced Search
MyIDEAS: Login to save this paper or follow this series

Reference Point Formation Over Time: A Weighting Function Approach

Contents:

Author Info

  • Baucells, Manel

    ()
    (IESE Business School)

  • Weber, Martin

    ()
    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

  • Welfens, Frank

    ()
    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Abstract

Although the concept of reference point dependent preferences has been adopted to almost all fields of behavioral economics, especially marketing and behavioral finance, we still know very little about how decision makers form their reference points given a sequence of prices. Our paper provides both a theoretical framework on reference point formation over time, based on cumulative prospect theory’s s-shaped weighting function, and a new experimental method for eliciting subjects’ individual reference points in a finance context. Consistent with our model, we document our subjects’ reference points to be best described by the first and the last price of the time series, with the equally weighted average and the highest price receiving smaller weights.. Results, however, vary strongly on the individual level and are also affected by the elicitation question applied.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sfb504.uni-mannheim.de/publications/dp07-43.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 07-43.

as in new window
Length: 0 pages
Date of creation: 27 Jun 2007
Date of revision:
Handle: RePEc:xrs:sfbmaa:07-43

Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
Contact details of provider:
Postal: D-68131 Mannheim
Phone: (49) (0) 621-292-2547
Fax: (49) (0) 621-292-5594
Email:
Web page: http://www.sfb504.uni-mannheim.de/
More information through EDIRC

Web page: http://www.sfb504.uni-mannheim.de

Order Information:
Email:

Related research

Keywords:

References

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.:
as in new window
  1. Camerer, Colin, et al, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 407-41, May.
  2. Andrea Frazzini, 2006. "The Disposition Effect and Underreaction to News," Journal of Finance, American Finance Association, vol. 61(4), pages 2017-2046, 08.
  3. Kahneman, Daniel & Wakker, Peter P & Sarin, Rakesh, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 375-405, May.
  4. Arkes, Hal R. & Hirshleifer, David & Jiang, Danling & Lim, Sonya, 2008. "Reference point adaptation: Tests in the domain of security trading," Organizational Behavior and Human Decision Processes, Elsevier, vol. 105(1), pages 67-81, January.
  5. Bruno Jullien & Bernard Salanié, 1997. "Estimating Preferences under Risk : The Case of Racetrack Bettors," Working Papers 97-39, Centre de Recherche en Economie et Statistique.
  6. Philip J. Cook & Charles T. Clotfelter, 1991. "The Peculiar Scale Economies of Lotto," NBER Working Papers 3766, National Bureau of Economic Research, Inc.
  7. Bowman, David & Minehart, Deborah & Rabin, Matthew, 1999. "Loss aversion in a consumption-savings model," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 155-178, February.
  8. Philippe Jehiel & Oliver Compte, 2007. "Bargaining with Reference Dependent Preferences," Levine's Bibliography 122247000000001552, UCLA Department of Economics.
  9. March, James G., 1988. "Variable risk preferences and adaptive aspirations," Journal of Economic Behavior & Organization, Elsevier, vol. 9(1), pages 5-24, January.
  10. Chip Heath & Steven Huddart & Mark Lang, 1999. "Psychological Factors And Stock Option Exercise," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 601-627, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Daniel Schunk & Joachim Winter, 2005. "The Relationship Between Risk Attitudes and Heuristics in Search Tasks: A Laboratory Experiment," MEA discussion paper series 05077, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  2. Carmen Lee & Roman Kraeussl & André Lucas & Leonard J. Paas, 2008. "A Dynamic Model of Investor Decision-Making: How Adaptation to Losses affects Future Selling Decisions," Tinbergen Institute Discussion Papers 08-112/2, Tinbergen Institute, revised 02 Sep 2013.
  3. Schunk, Daniel, 2009. "Behavioral heterogeneity in dynamic search situations: Theory and experimental evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 33(9), pages 1719-1738, September.
  4. Lee, Carmen & Kräussl, Roman & Lucas, André & Paas, Leo, 2010. "Why do investors sell losers? How adaptation to losses affects future capitulation decisions," CFS Working Paper Series 2010/23, Center for Financial Studies (CFS).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:xrs:sfbmaa:07-43. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carsten Schmidt).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.