Reference point adaptation and air quality – Experimental evidence with anti-PM 2.5 facemasks from China

Nan Zhang and Botao Qin

MPRA Paper from University Library of Munich, Germany

Abstract: The formation of reference points has drawn increasing interest ever since the introduction of prospect theory. Given that most studies focus on tradable goods such as stocks, for which the prices are observable, while few have focused on environmental goods. This paper attempts to fill this gap in the literature in this regard. In our experiment, we divided the subjects into buyers and sellers and asked them to trade four PM 2.5 filters using the Becker–DeGroot–Marschak mechanism. We have two treatments in this experiment: a) the experience of seven weeks of heavy air pollution; and b) the receiving of information on the relationship between death rates and air pollution. The different bidding prices for the four PM 2.5 filters in these treatment groups make it possible to trace the adjustment of the reference points as a result of these treatments without having to know their precise values. Our results show that, for buyers, the heavy air pollution drives them to fully downwardly adjust their reference points on air quality. For sellers, however, the reference points adaptation caused by heavy pollution is not a full adaptation. Moreover, the new information on the damage to health from air pollution causes buyers to upwardly adjust their reference points on air quality but does not significantly change the sellers’ reference points. We show that, for both treatments, sellers are more reluctant to adjust their reference points on air quality than are buyers. Our results confirm the asymmetric reference point adaptation in that adaptation after a loss is harder than adaptation after a gain.

Keywords: prospect theory; reference point; asymmetric adaptation; air pollution; BDM auction (search for similar items in EconPapers)
JEL-codes: C90 D44 Q53 (search for similar items in EconPapers)
Date: 2020-06-01
New Economics Papers: this item is included in nep-cna, nep-ene, nep-env, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/102935/1/MPRA_paper_102935.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:102935

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().