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Lagged beliefs and reference-dependent utility

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  • Smith, Alec

Abstract

Models of expectation-based reference-dependent preferences proposes that the reference point to which consumption outcomes are compared is endogenously determined as a function of lagged, probabilistic beliefs. This paper presents an experiment designed to test some predictions of expectation-based reference dependence models. The design induces a stochastic reference point via a lottery and then measures valuations for a commodity. The experimental results find no effect of the first stage lottery on commodity valuation.

Suggested Citation

  • Smith, Alec, 2019. "Lagged beliefs and reference-dependent utility," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 331-340.
  • Handle: RePEc:eee:jeborg:v:167:y:2019:i:c:p:331-340
    DOI: 10.1016/j.jebo.2018.10.004
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    More about this item

    Keywords

    Expectations; Beliefs; Reference-dependent preferences; Endowment effect; Prospect theory; Experiment;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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