Loss Aversion and Social Preferences: A Theoretical Approach to Examine the Impact of Social Preferences on Individual Reference Points

Details

Supervisors

Johnen, Johannes ; Maniquet, François

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale

Abstract

Economic research explored reference-dependent decision-making in many ways. Yet, one of the main questions linked to this field still remains unanswered: what influences an individual’s reference point? Many authors contributed to the debate of plausible candidates for the question on what individuals may refer while forming their decisions (e.g. status quo (Kahneman and Tversky [1979], Kahneman et al. [1991]) or rational expectations (e.g. Kőszegi and Rabin [2006], Abeler et al. [2011])). However, there is no clear finding why the reference point varies. Based on results supporting the idea of individuals comparing themselves with others to form a decision, we try to investigate whether peer outcomes may influence an individual’s reference point and her risk attitudes, given she observes their outcomes. In particular, we study social reference points by combining models of social preferences with models of reference-dependent preferences and loss aversion in order to address this question and to find a plausible answer on how social preferences may drive risk-taking behavior.