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Shift of reference point and implications on behavioral reaction to gains and losses

Lorenzo Masiero and David Hensher

Quaderni della facoltà di Scienze economiche dell'Università di Lugano from USI Università della Svizzera italiana

Abstract: It is widely recognized that individual decision making is subject to the evaluation of gains and losses around a reference point. The estimation of discrete choice models increasingly use data from stated choice experiments which are pivoted around a reference alternative. However, to date, the specification of a reference alternative in transport studies is fixed, whereas it is common to observe individuals adjusting their preferences according to a change in their reference point. This paper focuses on individual reactions, in a freight choice context, to a negative change in the reference alternative values, identifying the behavioural implications in terms of loss aversion and diminishing sensitivity. The results show a significant adjustment in the valuation of gains and losses around a shifted reference alternative. In particular, we find an average increase in loss aversion for cost and time attributes, and a substantial decrease for punctuality. These findings are translated to significant differences in the willingness to pay and willingness to accept measures, providing supporting evidence of respondents’ behavioural reaction.

Keywords: Willingness to pay; gains and losses; freight choice; reference alternative (search for similar items in EconPapers)
JEL-codes: C25 L91 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-03
New Economics Papers: this item is included in nep-cbe, nep-dcm, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Shift of reference point and implications on behavioral reaction to gains and losses (2011) Downloads
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