Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263591 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15375
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We experimentally test Kőszegi and Rabin's (2006, 2007) theory of reference-dependent preferences in the context of price expectations. In an incentivised valuation task, participants are endowed with a mug and provide their willingness to accept (WTA) to sell it. We manipulate the sale price in a separate, exogenous forced sale scenario, which is predicted to produce a 'comparison effect', moving WTA in the opposite direction to the forced sale price. Consistent with the theory, we observe a treatment effect of between AUD $0.79 and $2.06 in the hypothesised direction; however, it is statistically insignificant. We also elicit participants' loss aversion to account for heterogeneity in the theorised effect; however, controlling for the interaction between our treatment and loss aversion does not consistently strengthen our result.
Subjects: 
reference dependence
price expectations
comparison effect
loss aversion
JEL: 
C91
D90
Document Type: 
Working Paper

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