Seminar 218, Psychology and Economics: Heterogeneity of Loss Aversion and Expectations-Based Reference Points

Seminar | April 16 | 2-3:30 p.m. | 648 Evans Hall

 Charles Sprenger, University of California, San Diego

 Department of Economics

ABSTRACT: This project examines the role of heterogeneity in gain-loss attitudes for identifying models of expectations-based reference dependence (Koszegi and Rabin, 2006, 2007) (KR). Different gain-loss attitudes lead to different signs for KR comparative statics. Failure to account for the known heterogeneity in gain-loss attitudes is a central confounding factor challenging prior tests of the KR model conducted under the assumption of universal loss aversion. We document heterogeneous treatment effects over gain-loss types in both an initial experiment and an exact replication. Recognizing heterogeneity over types allows us to both recover the KR model’s central predictions, and account for inconsistency across prior empirical tests.