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Price expectations and reference-dependent preferences

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  • Rutledge, Robert M.
  • Alladi, Vinayak
  • Cheung, Stephen L.

Abstract

We test Kőszegi and Rabin's (2006, 2007) theory of reference-dependent preferences in the context of sellers’ price expectations. In a well-powered laboratory experiment, participants are endowed with a good and report their willingness to accept to sell it. We manipulate the price in an exogenous forced sale scenario, which is predicted to produce a “comparison effect”, moving WTA in the opposite direction to the forced sale price. We find a small (Cohen's d=0.18) and marginally significant effect in the hypothesised direction for incentivised reservation prices. More unexpectedly, we find a larger (d=0.32) and highly significant effect in the same direction on unincentivised estimates of the value of the good. Our results cannot be explained by anchoring or signalling effects of the forced sale price, but also highlight some challenges in identifying the effects of expectations manipulations using valuation designs.

Suggested Citation

  • Rutledge, Robert M. & Alladi, Vinayak & Cheung, Stephen L., 2025. "Price expectations and reference-dependent preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 231(C).
    • Handle: RePEc:eee:jeborg:v:231:y:2025:i:c:s0167268125000472
    DOI: 10.1016/j.jebo.2025.106927
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    References listed on IDEAS

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    1. Johannes Abeler & Armin Falk & Lorenz Goette & David Huffman, 2011. "Reference Points and Effort Provision," American Economic Review, American Economic Association, vol. 101(2), pages 470-492, April.
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    5. A. Banerji & Neha Gupta, 2014. "Detection, Identification, and Estimation of Loss Aversion: Evidence from an Auction Experiment," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 91-133, February.
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    More about this item

    Keywords

    Price expectations; Comparison effect; Loss aversion;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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