Reference-dependent preferences and probability judgments

Takaharu Ishii

Journal of Asian Economics, 2023, vol. 86, issue C

Abstract: This paper provides empirical evidence that probability judgments help explain a reference-dependent preference. It explains using the data for Tokyo Taxi drivers, which includes the respondents about psychological questions. Probability judgments based on a dual process to cognition means judgments and calculations of the probability when they determine something under uncertainty. It weakens the assumption that people have the same rationality. We permit the difference between cognition to rationality and probability judgments. These probability judgments relate to reference points and drivers' personalities and intuition, which influence decision-making and can explain several reference dependences. The difference of cognition to rationality also determines their reference dependence type. It uses Rational Experienced Inventory as the index of cognition to rationality. Frequentist type has different target variables with case type, subjective type, and fortune type. Each probability judgment type has each target as the reference point. Probability judgment types explain the type of cognition to rationality. This explains the endogeneity of reference dependence.

Keywords: Reference dependence; Probability judgment; Rational expectation; Rational experienced inventory (search for similar items in EconPapers)
JEL-codes: D91 J01 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:86:y:2023:i:c:s1049007823000337

DOI: 10.1016/j.asieco.2023.101613

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