A Theory of Reference-Dependent Behavior

Miguel Ballester and Jose Apesteguia

No 323, Working Papers from Barcelona School of Economics

Abstract: Extensive field and experimental evidence in a variety of environments show that behavior depends on a reference point. This paper provides an axiomatic characterization of this dependence. We proceed by imposing gradually more structure on both choice correspondences and preference relations, requiring increasingly higher levels of rationality, and freeing the decision-maker from certain types of inconsistencies. The appropriate degree of behavioral structure will depend on the phenomenon that is to be modeled. Lastly, we provide two applications of our work: one to model the status-quo bias, and another to model addictive behavior.

Keywords: habit formation; Rationalization; individual rationality; reference-dependence; path independence; status-quo bias; addiction (search for similar items in EconPapers)
JEL-codes: A12 B41 D11 (search for similar items in EconPapers)
Date: 2015-09
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Related works:
Journal Article: A theory of reference-dependent behavior (2009)
Working Paper: A theory of reference-dependent behavior (2007)
Working Paper: A Theory Of Reference-Dependent Beavior (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:323

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