Prospect Theory and Reference Point Adaptation: Evidence from the US, China, and Korea

Hal Arkes, David Hirshleifer, Danling Jiang and Sonya Lim ()

MPRA Paper from University Library of Munich, Germany

Abstract: We examined prospect theory and reference point adaptation following gains or losses using participants from China, Korea, and the US. Supporting prospect theory, we found in Studies 1 and 2 that subjects from all three countries generally exhibited loss aversion and a greater propensity for risk seeking in the loss domain than in the gain domain. In Study 3 we used the Becker, DeGroot, and Marschak (1964) procedure to ascertain the valuation subjects placed on a gamble after either a prior gain or a prior loss on a stock. After inferring the shift in each subject’s reference point following this prior gain or loss, we found that reference point adaptation following a gain exceeded that following a loss in all three countries. In our third study we also had subjects sell and then immediately repurchase a stock that had experienced a prior gain or loss, which was designed to “punctuate” or close the mental account containing the prior gain or loss. This manipulation caused an increase in reference point adaptation among the Americans but a decrease among the Asians.

Keywords: prospect theory; cross-cultural differences; reference point adaptation; mental accounting (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Date: 2007-07-09
New Economics Papers: this item is included in nep-cbe, nep-cna, nep-exp, nep-sea and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:4009

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