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Searching for the reference point

Author

Listed:
  • Aurélien Baillon

    (Erasmus University Rotterdam)

  • Han Bleichrodt

    (Erasmus University Rotterdam, ANU - Australian National University)

  • Vitalie Spinu

    (Erasmus University Rotterdam)

Abstract

"Although reference dependence plays a central role in explaining behavior, little is known about the way that reference points are selected. This paper identifies empirically which reference point people use in decision under risk. We assume a comprehensive reference-dependent model that nests the main reference-dependent theories, including prospect theory, and that allows for isolating the reference point rule from other behavioral parameters. Our experiment involved high stakes with payoffs up to a week's salary. We used an optimal design to select the choices in the experiment and Bayesian hierarchical modeling for estimation. The most common reference points were the status quo and a security level (the maximum of the minimal outcomes of the prospects in a choice). We found little support for the use of expectations-based reference points."

Suggested Citation

  • Aurélien Baillon & Han Bleichrodt & Vitalie Spinu, 2020. "Searching for the reference point," Post-Print hal-04325608, HAL.
    • Handle: RePEc:hal:journl:hal-04325608
    DOI: 10.1287/mnsc.2018.3224
    Note: View the original document on HAL open archive server: https://hal.science/hal-04325608
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