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

See all articles by Hal R. Arkes

Hal R. Arkes

Ohio State University - Department of Psychology

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Danling Jiang

College of Business, Stony Brook University

Sonya S. Lim

DePaul University - Department of Finance

Date Written: July 9, 2007

Abstract

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

Arkes, Hal R. and Hirshleifer, David A. and Jiang, Danling and Lim, Sonya S., A Cross-Cultural Study of Reference Point Adaptation: Evidence from China, Korea, and the US (July 9, 2007). Organizational Behavior and Human Decision Processes, Vol. 112, No. 2, pp. 99-111, July 2010. Available at SSRN: https://ssrn.com/abstract=999987

Hal R. Arkes (Contact Author)

Ohio State University - Department of Psychology ( email )

240N Lazenby Hall
1885 Neil Avenue
Columbus, OH 43210
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614-292-1592 (Phone)
614-688-3984 (Fax)

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Danling Jiang

College of Business, Stony Brook University ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

HOME PAGE: http://sites.google.com/site/danlingjiang

Sonya S. Lim

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States

HOME PAGE: http://sites.google.com/site/sonyalim/

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