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A theory of reference-dependent behavior

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Abstract

Extensive field and experimental evidence in a variety of environments show that behavior depends on a reference point. This paper provides an axiomatic characterization of this dependence. We proceed by imposing gradually more structure on both choice correspondences and preference relations, requiring increasingly higher levels of rationality, and freeing the decision-maker from certain types of inconsistencies. The appropriate degree of behavioral structure will depend on the phenomenon that is to be modeled. Last, we provide two applications of our work: one to model the status-quo bias, and another to model addictive behavior.

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Authors and Affiliations

  1. Universitat Pompeu Fabra, Barcelona, Spain

    Jose Apesteguia

  2. Universitat Autonoma de Barcelona, Barcelona, Spain

    Miguel A. Ballester

Authors
  1. Jose Apesteguia
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  2. Miguel A. Ballester
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Corresponding author

Correspondence to Jose Apesteguia.

Additional information

We thank the participants of many seminars and conferences for their valuable comments. We are most grateful to a referee for many valuable comments, suggestions, and criticisms that have led to a substantial improvement in the manuscript. The research was sponsored by the Spanish Commission of Science and Technology (SEJ2006-11510 and SEJ2005-01481/ECON) and the Barcelona Economics Program of CREA.

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Apesteguia, J., Ballester, M.A. A theory of reference-dependent behavior. Econ Theory 40, 427–455 (2009). https://doi.org/10.1007/s00199-008-0387-z

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