Testing the reference-dependent model: an experiment on asymmetrically dominated reference points

Attention and reference dependence.

“…For example, Tversky and Kahneman (1991) noted that decision makers generally prefer choice objects that are strict improvements over their reference point, relative to objects that involve tradeoffs with their reference point. Similar findings have been replicated by Herne (1998), who also finds that extreme reference points that are very weak on some attributes and very strong on other attributes lead to stronger biases in preference, relative to more evenly distributed reference points. Finally, Tversky and Kahneman (1991) noted that decision makers tend to prefer objects that involve small tradeoffs from the reference point relative to objects that involve larger tradeoffs from the reference point.…”

“…Effects 1 and 2 are explained through the gain–loss asymmetry, whereas Effect 6 requires both the gain–loss asymmetry and convex utility in losses. Herne (1998) provided further evidence for the descriptive power of the prospect theory valuation function. Effect 3 is explained by the gain–loss asymmetry, whereas Effects 4 and 5 are explained by both the gain–loss asymmetry and convex utility in losses.…”

“…According to that theory, however, the attention toward a particular attribute in an object depends (discontinuously) on the dispersion of the amount of that attribute across the choice set, and the endowment effect only arises if people seemingly sometimes forget to consider the entire choice set when valuing the endowed good. Moreover, Bordalo et al’s (2012b) model fails to account for a reference dependent choice anomaly documented by Herne (1998), Effect 5 in the Choices section, 2 as well as a number of other effects discussed in this article.…”

Prospect Theory and Choice Behaviour Strategies: Review and Synthesis of Concepts from Social and Transport sciences

“…PT presumes a diminishing sensitivity for increases in both gains and losses. Empirical evidence for this has been reported for consumers in Finland (Herne, 1998), Japan (Hu, 2007) and Hong Kong (Wong and Kwong, 2005), among others. Some evidence was found in travel-related settings (e.g.…”

Associations and the accumulation of preference.

“…Additionally, this effect increases as the reference point moves farther away from the target alternative. Herne (1998) also noted that the regular improvements versus trade-offs effect reduces as the reference alternative moves farther away from the target and closer to the competitor. In Figure 12 this implies that the choice share of x 1 relative to x 2 is higher if T 1 is the reference point, relative to if T 2 is the reference point.…”