A Random Reference Model

Özgür Kibris, Yusufcan Masatlioglu and Elchin Suleymanov

American Economic Journal: Microeconomics, 2024, vol. 16, issue 1, 155-209

Abstract: We provide two nested models of random reference-dependent choice in which the reference point is endogenously determined by random processes. Random choice behavior is due to random reference points, even though, from the decision-maker's viewpoint, choices are deterministic. Through a revealed preference exercise, we establish when and how one can identify the reference-dependent preferences and the random reference rule from observed choice data. We also present behavioral postulates that characterize the empirical content of our models. Lastly, we investigate an application of our model to Bertrand competition with differentiated products.

JEL-codes: D11 D91 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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DOI: 10.1257/mic.20220089

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