Heterogeneity of Loss Aversion and Expectations-Based Reference Points

53 Pages Posted: 12 May 2018

See all articles by Lorenz Goette

Lorenz Goette

University of Bonn

Thomas Graeber

Harvard Business School

Alexandre Kellogg

University of California, San Diego (UCSD)

Charles Sprenger

University of California, San Diego (UCSD)

Date Written: April 27, 2018

Abstract

This project examines the role of heterogeneity in loss aversion for identifying models of expectations-based reference dependence (Kőszegi and Rabin, 2006, 2007) (KR). Different levels of loss aversion lead to different signs for comparative statics previously used to test the KR model. In an experiment with 607 subjects, we show heterogeneous treatment effects over loss aversion types. Recognizing heterogeneity in loss aversion allows us to reliably recover the KR model’s central element of expectations-based reference points. Additional effects are discussed related to the subjective perception of exchange experiences.

Keywords: Reference-Dependent Preferences, Rational Expectations, Personal Equilibrium, Endowment Effect, Expectations-Based Reference Points

JEL Classification: D81, D84, D12, D03

Suggested Citation

Goette, Lorenz and Graeber, Thomas and Kellogg, Alexandre and Sprenger, Charles, Heterogeneity of Loss Aversion and Expectations-Based Reference Points (April 27, 2018). Available at SSRN: https://ssrn.com/abstract=3170670 or http://dx.doi.org/10.2139/ssrn.3170670

Lorenz Goette

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Thomas Graeber (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://thomasgraeber.com/

Alexandre Kellogg

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

Charles Sprenger

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

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