A Behavioral Analysis of Stochastic Reference Dependence
Yusufcan Masatlioglu and Collin Raymond
,
9
(
106
)
American Economic Review
2760-2782
September
2016
Abstract
We examine the reference-dependent risk preferences of Koszegi and Rabin (2007), focusing on their choice-acclimating personal equilibria. Although their model has only a trivial intersection (expected utility) with other reference-dependent models, it has very strong connections with models that rely on different psychological intuitions. We prove that the intersection of rank-dependent utility and quadratic utility, two well-known generalizations of expected utility, is exactly monotone linear gain-loss choice-acclimating personal equilibria.