On the theory of reference-dependent preferences (revised)

Alistair Munro and Robert Sugden

University of East Anglia Discussion Papers in Economics from School of Economics, University of East Anglia, Norwich, UK.

Abstract: A theory is proposed in which preferences are conditional on reference points. It is related to Tversky and Kahneman's reference-dependent preference theory, but is simpler and deviates less from conventional consumer theory. Preferences conditional on any given reference point satisfy standard assumptions. Apart from a continuity condition, the only additional restriction is to rule out cycles of pairwise choice. The theory is consistent with observations of status quo bias and related effects. Reference points are treated as subject to change during the course of trade. The implications of endogeneity of reference points for behaviour in markets are investigated.

Keywords: status quo bias; behavioral economics; loss aversion; reference-dependence; prospect theory; general equilibrium (search for similar items in EconPapers)
JEL-codes: D11 D51 (search for similar items in EconPapers)
Pages: pages
Date: 2001-03-21
New Economics Papers: this item is included in nep-cbe
Note: This is an updated version of the original 1998 paper.
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Persistent link: https://EconPapers.repec.org/RePEc:uea:papers:9803

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