Heterogeneity of Gain-Loss Attitudes and Expectations-Based Reference Points

By: Pol Campos-Mercade, Lorenz Goette, Thomas Graeber, Alex Kellogg and Charles Sprenger

Format:Print
| Language:English
| Pages:150

Abstract

Existing tests of reference-dependent preferences assume universal loss aversion. This paper examines heterogeneity in gain-loss attitudes, and explores its implications for identifying models of the reference point. In two experimental settings we measure gain-loss attitudes, and then study a canonical treatment effect which distinguishes different models of the reference point. Accounting for measurement error, we document substantial heterogeneity in gain-loss attitudes, with approximately threequarters loss-averse subjects. We then document heterogeneous treatment effects over gain-loss attitudes consistent with formulations of expectations-based reference points. Our findings provide foundational support for reference points derived from expectations, and explain inconsistencies across prior exercises.