Reference-dependent preferences : rationality, mechanism and welfare implications
In this paper, we ask three questions about reference-dependent preferences (RDP) : to what extent can they be said to be irrational ? What is the mechanism that underlies reference dependence? How to design welfare improving policies when preferences are reference-dependent? As to the first question, we characterize three notions of rationality to assess the rationality of RDP and show that there is a sense in which they are rational. As to the second, we show that the effect of a shifting reference point is two-sided : first modifying the relevant criteria for choice and second modifying the desirability of an option. As to the third question we define a welfare ordering based on the comparison of the strength of the status quo bias and show how to relate it to the representation of preferences.
|Date of creation:||Sep 2004|
|Date of revision:|
|Contact details of provider:|| Postal: 106 - 112 boulevard de l'Hôpital, 75647 Paris cedex 13|
Phone: 01 44 07 81 00
Fax: 01 44 07 81 09
Web page: http://mse.univ-paris1.fr/
More information through EDIRC
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.:
- Donaldson, David & Weymark, John A., 1998. "A Quasiordering Is the Intersection of Orderings," Journal of Economic Theory, Elsevier, vol. 78(2), pages 382-387, February.
- Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1039-1061.
- Sugden, Robert, 2003. "Reference-dependent subjective expected utility," Journal of Economic Theory, Elsevier, vol. 111(2), pages 172-191, August.
- Samuelson, William & Zeckhauser, Richard, 1988. "Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
- Lloyd S. Shapley & Manel Baucells, 1998.
UCLA Economics Working Papers
779, UCLA Department of Economics.
- Manel Baucells & Lloyd S. Shapley, 2000. "Multiperson Utility," Econometric Society World Congress 2000 Contributed Papers 0078, Econometric Society.
- Masatlioglu, Yusufcan & Ok, Efe A., 2005. "Rational choice with status quo bias," Journal of Economic Theory, Elsevier, vol. 121(1), pages 1-29, March.
- Dubra, Juan & Maccheroni, Fabio & Ok, Efe A., 2004.
"Expected utility theory without the completeness axiom,"
Journal of Economic Theory,
Elsevier, vol. 115(1), pages 118-133, March.
- Juan Dubra & Fabio Maacheroni & Efe A. Ok, 2001. "Expected Utility Theory without the Completeness Axiom," Cowles Foundation Discussion Papers 1294, Cowles Foundation for Research in Economics, Yale University.
- Juan Dubra & Fabio Maccheroni & Efe Oki, 2001. "Expected utility theory without the completeness axiom," ICER Working Papers - Applied Mathematics Series 11-2001, ICER - International Centre for Economic Research.
- Munro, Alistair & Sugden, Robert, 2003. "On the theory of reference-dependent preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 50(4), pages 407-428, April.
- Duggan, John, 1999. "A General Extension Theorem for Binary Relations," Journal of Economic Theory, Elsevier, vol. 86(1), pages 1-16, May.
- Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December.
When requesting a correction, please mention this item's handle: RePEc:mse:wpsorb:v04087. 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: (Lucie Label)
If references are entirely missing, you can add them using this form.