This paper explores how a change in a default—specifically, an exogenously given reference point—affects individual preferences. While reference dependence is extensively studied, very little is known regarding the impact of reference points on individual choice behavior when the reference points themselves are not chosen (Reference Effect). We identify critical properties that differentiate between classes of reference-dependent models and test them.
Understanding the Reference EffectYusufcan Masatlioglu and Neslihan Uler , ( 82 )
Games and Economic Behavior,