Expectations-Based Reference-Dependence and Choice Under Risk

Freeman, David

doi:10.1111/ecoj.12639

Cited by 9 publications

(13 citation statements)

References 39 publications

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“…15 This bound ensures that a bidder's expected utility is increasing in her type by imposing that the weight on gain-loss utility does not (strictly) exceed the weight on consumption utility. 16 Finally, notice that risk neutrality is embedded in the model as a special case (for either η g = η m = 0 or λ g = λ m = 1).…”

Section: Solution Conceptsmentioning

confidence: 99%

“…15 Assumption 1 is relevant for the derivation of the equilibrium bids under CPE, but it is not needed under UPE; nonetheless, we maintain it throughout the paper as this makes it easier to compare equilibrium bids across the two specifications. 16 Herweg et al (2010) first introduced Assumption 1 and referred to it as "no dominance of gain-loss utility". This assumption, which has been used also by Lange and Ratan (2010), Eisenhuth (2019) and Benkert (2022), ensures that a loss-averse agent does not select first-order stochastically-dominated options; see also Masatlioglu and Raymond (2016).…”

Section: Deterministic Reserve Pricesmentioning

confidence: 99%

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Dutch vs. first-price auctions with expectations-based loss-averse bidders

Balzer

Rosato

Wangenheim

2022

Journal of Economic Theory

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Section: Solution Conceptsmentioning

confidence: 99%

Section: Deterministic Reserve Pricesmentioning

confidence: 99%

Dutch vs. first-price auctions with expectations-based loss-averse bidders

Balzer

Rosato

Wangenheim

2022

Journal of Economic Theory

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“…Based on Köszegi and Rabin (2006, 2007) and Köszegi (2010), Freeman (2017) characterizes a general version of personal equilibrium (and preferred personal equilibrium) in an abstract setting and Freeman (2019) characterizes an expected utility preferred personal equilibrium model of choice under risk. Throughout this section, we focus on the general version of personal equilibrium which we refer to as PE, and the Personal Equilibrium with Linear Loss Aversion (PE‐LLA) 8 .…”

Section: Alternative Modelsmentioning

confidence: 99%

“…However, there is a cost to this generalization as there can be existence issues, unlike our model. Freeman (2019) provides an example where a PE does not exist:

S = false{m, m^{'} false}

v false(m^{'} false| m false) > v false(m false| m false)

and

v false(m false| m^{'} false) > v false(m^{'} false| m^{'} false)

. This example is impossible in our framework.…”

Section: Alternative Modelsmentioning

confidence: 99%

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Games with switching costs and endogenous references

Guney

Richter

2022

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We introduce a game‐theoretic model with switching costs and endogenous references. An agent endogenizes his reference strategy, and then taking switching costs into account, he selects a strategy from which there is no profitable deviation. We axiomatically characterize this selection procedure in one‐player games. We then extend this procedure to multiplayer simultaneous games by defining a Switching Cost Nash Equilibrium (SNE) notion, and prove that (i) an SNE always exists; (ii) there are sets of SNE, which can never be a set of Nash equilibrium for any standard game; and (iii) SNE with a specific cost structure exactly characterizes the Nash equilibrium of nearby games, in contrast to Radner's (1980) ε‐equilibrium. Subsequently, we apply our SNE notion to a product differentiation model, and reach the opposite conclusion of Radner (1980): switching costs for firms may benefit consumers. Finally, we compare our model with others, especially Köszegi and Rabin's (2006) personal equilibrium.

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