A Cross-Cultural Study of Reference Point Adaptation: Evidence from China, Korea, and the US
31 Pages Posted: 12 Jul 2007 Last revised: 11 Jun 2010
Date Written: July 9, 2007
We examined reference point adaptation following gains or losses in security trading using participants from China, Korea, and the US. In both questionnaire studies and trading experiments with real money incentives, reference point adaptation was larger for Asians than for Americans. Subjects in all countries adapted their reference points more after a gain than after an equal-sized loss. When we introduced a forced sale intervention that highlighted a prior price change, Americans showed greater adaptation toward the new price, whereas Asians showed less adaptation. We offer possible explanations both for the cross-cultural similarities and the cross-cultural differences.
Keywords: Prospect theory, cross-cultural differences, reference point adaptation, mental accounting, security trading
JEL Classification: C91, D81
Suggested Citation: Suggested Citation