Are Reference Points Merely Lagged Beliefs Over Probabilities?

41 Pages Posted: 18 Jun 2018 Last revised: 20 Jul 2023

See all articles by Ori Heffetz

Ori Heffetz

Cornell University - S.C. Johnson Graduate School of Management; The Hebrew University of Jerusalem - Department of Economics and Center for Rationality; National Bureau of Economic Research (NBER)

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Date Written: June 2018

Abstract

What explains the mixed evidence from laboratory tests of Kőszegi and Rabin’s (2006 and later) model of expectations-based reference-dependent preferences? We investigate one hypothesis: to become (behavior-affecting) reference points, probability beliefs have to sink in—being merely lagged, as the theory requires, is not sufficient. Past experiments with conflicting findings exogenously endowed subjects with beliefs that were equally lagged, but possibly unequally sunk-in. In four experiments, whose designs replicate past KR-nonsupporting experiments, we add new sink-in manipulations that endow individuals with additional, visual/physical probability impressions. Our findings are more KR-supporting in an endowment-effect setting but not in an effort-provision setting.

Suggested Citation

Heffetz, Ori, Are Reference Points Merely Lagged Beliefs Over Probabilities? (June 2018). NBER Working Paper No. w24721, Available at SSRN: https://ssrn.com/abstract=3198023

Ori Heffetz (Contact Author)

Cornell University - S.C. Johnson Graduate School of Management ( email )

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The Hebrew University of Jerusalem - Department of Economics and Center for Rationality

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Jerusalem, Jerusalem 91905
Israel

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/~heffetz

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