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Yesterday's expectation of tomorrow determines what you do today: The role of reference-dependent utility from expectations

Astrid Matthey ()

No 2008-003, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: The paper introduces the concept of adjustment utility, that is, reference-dependent utility from expectations. It offers an explanation for observed preferences that cannot be explained with existing models, and yields new predictions for individual decision making. The model gives a simple explanation for, e.g., why people are reluctant to change their plans even when these turn out to be unexpectedly costly; people's aversion towards positive but false information, which cannot be explained with previous models; and the increasing acceptance of risks when people get used to them.

Keywords: utility; expectations; reference-dependent preferences; anticipation; prospect theory; experiments (search for similar items in EconPapers)
JEL-codes: C99 D11 D81 D84 (search for similar items in EconPapers)
Date: 2008-01-15
New Economics Papers: this item is included in nep-cba, nep-cbe, nep-evo, nep-exp and nep-upt
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