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Searching for the Reference Point

Aurelien Baillon (), Han Bleichrodt and Vitalie Spinu ()
Additional contact information
Vitalie Spinu: Erasmus School of Economics, Erasmus University Rotterdam, 3062 PA Rotterdam, Netherlands;

Management Science, 2020, vol. 66, issue 1, 93-112

Abstract: Although reference dependence plays a central role in explaining behavior, little is known about the way that reference points are selected. This paper identifies empirically which reference point people use in decision under risk. We assume a comprehensive reference-dependent model that nests the main reference-dependent theories, including prospect theory, and that allows for isolating the reference point rule from other behavioral parameters. Our experiment involved high stakes with payoffs up to a week’s salary. We used an optimal design to select the choices in the experiment and Bayesian hierarchical modeling for estimation. The most common reference points were the status quo and a security level (the maximum of the minimal outcomes of the prospects in a choice). We found little support for the use of expectations-based reference points.

Keywords: reference point; reference dependence; Bayesian hierarchical modeling; large-stake experiment (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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https://doi.org/10.1287/mnsc.2018.3224 (application/pdf)

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