Work

The Limits of Expectations-Based Reference Dependence

Year: 2017

Type: article

Abstract: Theories of expectations-based reference-dependent preferences have provided a critical modeling innovation, incorporating a structured theory of the formation of reference points. An important prediction of these models is a monotone response in behavior to changes in expectations. To test such models we conduct a real-effort experiment manipulating expectations and examining consequences on effort provision. In contrast to the theory, we document substantial nonmonotonicities in the effort response to changing expectations. Our results provide some evidence on the limitations of expectations-based reference dependence. (JEL: D81, D84, D12, D03)

Source: Journal of the European Economic Association

DOI: 10.1093/jeea/jvw020

Authors: Uri Gneezy, Lorenz Goette, Charles Sprenger, Florian Zimmermann

Institutions: University of California San Diego, University of Bonn, University of Zurich

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: bronze

Funder: National Science Foundation

Award: Doctoral Dissertation Research in Economics: Uncertainty Equivalents