First experimental study: A second look at expectations as reference points – the domain of losses
Reference dependency has a long tradition in psychology (Lewin et al., 1944, Siegel, 1957) and it has been applied in behavioral economics with Kahneman and Tversky’s prospect theory. Following Kahneman and Tversky (1979), whether a decision outcome is perceived as a gain or as a loss compared with a subjective reference point has a strong influence on risk attitudes (Hack & Lam-mers, 2008). In principle, individuals show risk aversion in the gain domain and risk-seeking behavior in the loss domain, as well as a significantly greater aver-sion to losses than an appreciation of gains. The literature that examines the individual reference point is relatively poorly conceived, although it is vital to define what constitutes a reference point.
KeywordsReference Point Stock Price Prospect Theory Loss Base Loss Control
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