Reference-Based Decisions in Finance

Fernando Zapatero

Chapter 1 in Behavioral Finance:Where Do Investors' Biases Come From?, 2016, pp 3-29 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We survey a number of financial settings linked by the importance of a reference point in the decision making process. For each of them, we discuss how the reference points affect the decisions. We conclude that it is not a coincidence that reference points are essential to many financial settings. Reference points boost the incentives of the individuals, which we argue is the reason why they are so prevalent. Stronger incentives lead to more effort, which leads to higher achievement and the desire for more reference point-based decisions.

Keywords: Behavioral Finance; Rationality; Experimental Finance; Reference Points; Professionals; Gender; Culture and Finance; Equity Premium (search for similar items in EconPapers)
JEL-codes: D91 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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