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A Theory of Reference-Dependent Behavior

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  • Jose Apesteguia
  • Miguel Ángel Ballester

Abstract

Extensive 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.

Suggested Citation

  • Jose Apesteguia & Miguel Ángel Ballester, 2007. "A Theory of Reference-Dependent Behavior," Working Papers 323, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:323
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    References listed on IDEAS

    as
    1. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, pages 1133-1165.
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    7. Sugden, Robert, 2003. "Reference-dependent subjective expected utility," Journal of Economic Theory, Elsevier, vol. 111(2), pages 172-191, August.
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    14. Ian Bateman & Alistair Munro & Bruce Rhodes & Chris Starmer & Robert Sugden, 1997. "A Test of the Theory of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 479-505.
    15. Raphaël Giraud, 2004. "Reference-dependent preferences : rationality, mechanism and welfare implications," Cahiers de la Maison des Sciences Economiques v04087, Université Panthéon-Sorbonne (Paris 1).
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    Citations

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    Cited by:

    1. Georgios Gerasimou, 2016. "Asymmetric dominance, deferral, and status quo bias in a behavioral model of choice," Theory and Decision, Springer, pages 295-312.
    2. Shaofang Qi, 2016. "A characterization of the n-agent Pareto dominance relation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(3), pages 695-706, March.
    3. Amedeo Piolatto & Matthew D. Rablen, 2017. "Prospect theory and tax evasion: a reconsideration of the Yitzhaki puzzle," Theory and Decision, Springer, pages 543-565.
    4. Daniel Krähmer & Rebecca Stone, 2013. "Anticipated regret as an explanation of uncertainty aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 709-728.
    5. Torben Andersen & Joydeep Bhattacharya, 2011. "On myopia as rationale for social security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 135-158.
    6. Özgür Evren, 2012. "Scalarization Methods and Expected Multi-Utility Representations," Working Papers w0174, Center for Economic and Financial Research (CEFIR).
    7. Buturak, Gökhan & Evren, Özgür, 2017. "Choice overload and asymmetric regret," Theoretical Economics, Econometric Society.
    8. Benito Arruñada, 2012. "Property as an economic concept: reconciling legal and economic conceptions of property rights in a Coasean framework," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(2), pages 121-144, July.
    9. McCarthy, David & Mikkola, Kalle & Thomas, Teruji, 2017. "Representation of strongly independent preorders by sets of scalar-valued functions," MPRA Paper 79284, University Library of Munich, Germany.
    10. Bruttel, Lisa & Friehe, Tim, 2014. "On the path dependence of tax compliance," European Economic Review, Elsevier, pages 90-107.
    11. Daniele Pennesi, 2013. "Endogenous Status Quo," Carlo Alberto Notebooks 314, Collegio Carlo Alberto.
    12. repec:eee:jeborg:v:143:y:2017:i:c:p:165-172 is not listed on IDEAS
    13. Buturak, Gökhan & Evren, Özgür, 2017. "Choice overload and asymmetric regret," Theoretical Economics, Econometric Society.
    14. Apesteguia, Jose & Ballester, Miguel A., 2013. "Choice by sequential procedures," Games and Economic Behavior, Elsevier, vol. 77(1), pages 90-99.
    15. Raphaël Giraud, 2012. "Money matters: an axiomatic theory of the endowment effect," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 303-339.
    16. Georgios Gerasimou, 2016. "Asymmetric dominance, deferral, and status quo bias in a behavioral model of choice," Theory and Decision, Springer, pages 295-312.
    17. Ghossoub, Mario, 2011. "Towards a Purely Behavioral Definition of Loss Aversion," MPRA Paper 37628, University Library of Munich, Germany, revised 23 Mar 2012.
    18. Raphaël Giraud, 2010. "On the interpretation of the WTP/WTA gap as imprecise utility: an axiomatic analysis," Economics Bulletin, AccessEcon, vol. 30(1), pages 692-701.
    19. Evren, Özgür, 2014. "Scalarization methods and expected multi-utility representations," Journal of Economic Theory, Elsevier, vol. 151(C), pages 30-63.
    20. Mark Dean & Ozgur Kibris & Yusufcan Masatlioglu, 2014. "Limited Attention and Status Quo Bias," Working Papers 2014-11, Brown University, Department of Economics.
    21. Douadia Bougherara & Xavier Gassmann & Laurent Piet, 2011. "A structural estimation of French farmers’ risk preferences: an artefactual field experiment," Working Papers SMART - LERECO 11-06, INRA UMR SMART-LERECO.
    22. Papi, Mauro, 2012. "Satisficing choice procedures," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 451-462.
    23. repec:eee:jetheo:v:169:y:2017:i:c:p:93-127 is not listed on IDEAS
    24. Evren, Özgür & Ok, Efe A., 2011. "On the multi-utility representation of preference relations," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 554-563.

    More about this item

    Keywords

    individual rationality; reference-dependence; Rationalization; path independence; status-quo bias; addiction; habit formation.;

    JEL classification:

    • 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

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