A Behavioral Analysis of Stochastic Reference Dependence

Yusufcan Masatlioglu and Collin Raymond

American Economic Review, 2016, vol. 106, issue 9, 2760-82

Abstract: We examine the reference-dependent risk preferences of Koszegi and Rabin (2007), focusing on their choice-acclimating personal equilibria. Although their model has only a trivial intersection (expected utility) with other reference-dependent models, it has very strong connections with models that rely on different psychological intuitions. We prove that the intersection of rank-dependent utility and quadratic utility, two well-known generalizations of expected utility, is exactly monotone linear gain-loss choice-acclimating personal equilibria. We use these relationships to identify parameters of the model, discuss loss and risk aversion, and demonstrate new applications.

JEL-codes: D11 D81 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20140973
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Citations: View citations in EconPapers (67)

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