On the theory of reference-dependent preferences

A. Munro, R. Sugden

Research output: Contribution to journalArticlepeer-review

100 Citations (Scopus)

Abstract

A theory is proposed in which preferences are conditional on reference points. It is related to Tversky and Kahneman's reference-dependent preference theory, but is simpler and deviates less from conventional consumer theory. Preferences conditional on any given reference point satisfy conventional assumptions. Apart from a continuity condition, the only additional restriction is to rule out cycles of pairwise choice. The theory is consistent with observations of status quo bias and related effects. Reference points are treated as subject to change during the course of trade. The implications of endogeneity of reference points for behaviour in markets are investigated.
Original languageEnglish
Pages (from-to)407-428
Number of pages22
JournalJournal of Economic Behavior and Organization
Volume50
Issue number4
DOIs
Publication statusPublished - 1 Apr 2003

Keywords

  • Status quo bias
  • Loss aversion
  • Reference-dependence
  • Prospect theory

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