Search behaviour with reference point preferences : theory and experimental evidence

Schunk, Daniel

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URN: urn:nbn:de:bsz:180-madoc-26669
Document Type: Working paper
Year of publication: 2005
The title of a journal, publication series: None
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 300 Social sciences, sociology, anthropology
Classification: JEL: D83 C91 ,
Subject headings (SWD): Suchtheorie , Erwarteter Nutzen , Risikoverhalten , Theorie , Entscheidungsprozess
Keywords (English): dynamic choice , sequential decision behaviour , reference points , loss aversion , preference elicitation , risk aversion
Abstract: People are heterogeneous with respect to their behaviour in sequential decision situations. This paper develops models for search behaviour under the assumption of expected-utility maximisation and a new search model that assumes sequential updating of utility reference points during the search process. I find experimental evidence that supports the new reference point model: Individual loss aversion is systematically related to the observed search behaviour in a way that is consistent with the predictions of the reference point model. Risk attitude is not related to search behaviour. The finding that many people set reference points in sequential decision tasks is of interest in, e.g. consumer economics, labour economics, finance, and decision theory.
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