Search behaviour with reference point preferences

Daniel Schunk

No 05-12, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: People are heterogeneous with respect to their behaviour in sequential decision situations. This paper develops models for search behaviour under the assumption of expected-utility maximisation and a new search model that assumes sequential updating of utility reference points during the search process. I find experimental evidence that supports the new reference point model: Individual loss aversion is systematically related to the observed search behaviour in a way that is consistent with the predictions of the reference point model. Risk attitude is not related to search behaviour. The finding that many people set reference points in sequential decision tasks is of interest in, e.g. consumer economics, labour economics, finance, and decision theory.

Pages: 43 pages
Date: 2005-02-28
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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