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- Reference dependence is a central principle in prospect theory and behavioral economics generally. It holds that people evaluate outcomes and express preferences relative to an existing reference point, or status quo. It is related to loss aversion and the endowment effect. In prospect theory it is appropriate to use the selected status quo to determine the reference point. However, depending on the particular research being conducted researchers have proven reference dependence from more than just well known brands and the status quo. The types of reference points used varies but studies have used individual goals, aspirations and social comparisons. Alternative reference points are used by researches commonly in the school of phycology but present some challenges to the methodologies of studies. Measuring reference dependence in field studies and laboratory experiments presents challenges as reference point values are unique to individuals, they are highly malleable and can be predetermined based on life experiences. Reference dependence studies are commonly critiqued on the context in which they provoke responses and to the accuracies in measuring highly malleable reference points. Reference points that appear to be random in nature can also influence the decision of the individual choice. Ariely et.al (2003) were able to show that when a random variable is assigned to an individual that they will use that as reference point for the pricing of items. Through a series of lottery and chance experiments, individuals were influenced in their pricing decisions based on a randomised reference point. Multiple reference points can simultaneously manipulate the individuals perspective of an outcome. A gain in the value of a product relative to the reference point can become null as the individual compares at the same time to a reference point that decreases the value of the product. (en)
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- 6339 (xsd:nonNegativeInteger)
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- Reference dependence is a central principle in prospect theory and behavioral economics generally. It holds that people evaluate outcomes and express preferences relative to an existing reference point, or status quo. It is related to loss aversion and the endowment effect. Multiple reference points can simultaneously manipulate the individuals perspective of an outcome. A gain in the value of a product relative to the reference point can become null as the individual compares at the same time to a reference point that decreases the value of the product. (en)
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- Reference dependence (en)
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