My Reference Point, Not Yours

Abstract

Reference points formed by initial endowments influence individual decisions. This experiment tests whether an individual can predict the behavior of other people who have different reference points. Despite financial incentives for being correct, players fail to imagine themselves in another person's shoes. A low endowment player generally cannot predict the behavior of those who were assigned high endowments, and vice versa, when asked about group behavior. Instead of considering the perspectives of others, a low endowment player predicts that all others will act as if they all had low endowments. This controlled experiment helps explain why it is difficult to understand the perspectives of other people, while also demonstrating that it is possible when a player is specifically prompted to consider an individual in a different circumstance.

Keywords: Reference points, beliefs, experiments, expectations

JEL Classification: C91, D84, D91