2023
Working Paper
HBS Working Paper Series

'De Gustibus' and Disputes about Reference Dependence

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

Format:Print
| Language:English
| Pages:146

Abstract

Existing tests of reference-dependent preferences assume universal loss aversion. This paper examines the implications of heterogeneity in gain-loss attitudes for such tests. In experiments on labor supply and exchange behavior we measure gain-loss attitudes and then study a canonical treatment effect that distinguishes different models of reference dependence. We document substantial heterogeneity in gain-loss attitudes and evidence against universal loss aversion. We then document heterogeneous treatment effects over gain-loss attitudes consistent with formulations of expectations-based reference points. Assuming homogeneous preferences would lead to different and possibly incorrect conclusions in these tests. Our findings provide foundational support for reference points derived from expectations, and reconcile inconsistencies across prior exercises.

Keywords

Behavioral Economics; Decision Choices and Conditions; Forecasting and Prediction

Citation

Graeber, Thomas, Pol Campos-Mercade, Lorenz Goette, Alexandre Kellogg, and Charles Sprenger. "'De Gustibus' and Disputes about Reference Dependence." Harvard Business School Working Paper, No. 24-046, January 2024.