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The Limits of Expectations-Based Reference Dependence

Uri Gneezy, Lorenz Goette, Charles Sprenger and Florian Zimmermann

Journal of the European Economic Association, 2017, vol. 15, issue 4, 861-876

Abstract: Theories of expectations-based reference-dependent preferences have provided a critical modeling innovation, incorporating a structured theory of the formation of reference points. An important prediction of these models is a monotone response in behavior to changes in expectations. To test such models we conduct a real-effort experiment manipulating expectations and examining consequences on effort provision. In contrast to the theory, we document substantial nonmonotonicities in the effort response to changing expectations. Our results provide some evidence on the limitations of expectations-based reference dependence.

JEL-codes: D81 D84 D12 D03 (search for similar items in EconPapers)
Date: 2017
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