Asymmetric gain–loss reference dependence and attitudes toward uncertainty. / Lleras, Juan Sebastián; Piermont, Evan; Svoboda, Richard.

In: Economic Theory, 17.07.2018, p. 1-31.

Research output: Contribution to journalArticle

E-pub ahead of print

Abstract

This paper characterizes a model of reference-dependence, where a state-contingent contract (act) is evaluated by its expected value and its expected gain-loss utility. The expected utility of an act serves as the reference point, hence gains (resp., losses) occur when the act provides an outcome that is better (worse) than expected. The utility representation is characterized by a belief regarding the state space and a degree of reference-dependence; both are uniquely identified from behavior. We establish a link between this type of reference-dependence and attitudes towards uncertainty. We show that loss aversion and reference dependence are equivalent to MaxMin and concave expected utility.
Original languageEnglish
Pages (from-to)1-31
Number of pages31
JournalEconomic Theory
Early online date17 Jul 2018
DOIs
Publication statusE-pub ahead of print - 17 Jul 2018
This open access research output is licenced under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

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