Reference point heterogeneity

Ayse Terzi, Kees Koedijk, Charles N. Noussair, Rachel Pownall

Research output: Contribution to journalArticleScientificpeer-review

Abstract

It is well-established that, when confronted with a decision to be taken under risk, individuals use reference payoff levels as important inputs. The purpose of this paper is to study which reference points characterize decisions in a setting in which there are several plausible reference levels of payoff. We report an experiment, in which we investigate which of four potential reference points: (1) a population average payoff level, (2) the announced expected payoff of peers in a similar decision situation, (3) a historical average level of earnings that others have received in the same task, and (4) an announced anticipated individual payoff level, best describes decisions in a decontextualized risky decision making task. We find heterogeneity among individuals in the reference points they employ. The population average payoff level is the modal reference point, followed by experimenter's stated expectation of a participant's individual earnings, followed in turn by the average earnings of other participants in previous sessions of the same experiment. A sizeable share of individuals show multiple reference points simultaneously. The reference point that best fits the choices of the individual is not affected by a shock to her income.

LanguageEnglish
Article number1347
Number of pages10
JournalFrontiers in Psychology
Volume7
DOIs
StatePublished - Sep 2016

Keywords

  • reference point
  • experiment
  • decision making
  • risk

Cite this

Terzi, A., Koedijk, K., Noussair, C. N., & Pownall, R. (2016). Reference point heterogeneity. Frontiers in Psychology, 7, [1347]. DOI: 10.3389/fpsyg.2016.01347
Terzi, Ayse ; Koedijk, Kees ; Noussair, Charles N. ; Pownall, Rachel. / Reference point heterogeneity. In: Frontiers in Psychology. 2016 ; Vol. 7.
@article{9ef0ddbd8f52484587b3183ea035c6ef,
title = "Reference point heterogeneity",
abstract = "It is well-established that, when confronted with a decision to be taken under risk, individuals use reference payoff levels as important inputs. The purpose of this paper is to study which reference points characterize decisions in a setting in which there are several plausible reference levels of payoff. We report an experiment, in which we investigate which of four potential reference points: (1) a population average payoff level, (2) the announced expected payoff of peers in a similar decision situation, (3) a historical average level of earnings that others have received in the same task, and (4) an announced anticipated individual payoff level, best describes decisions in a decontextualized risky decision making task. We find heterogeneity among individuals in the reference points they employ. The population average payoff level is the modal reference point, followed by experimenter's stated expectation of a participant's individual earnings, followed in turn by the average earnings of other participants in previous sessions of the same experiment. A sizeable share of individuals show multiple reference points simultaneously. The reference point that best fits the choices of the individual is not affected by a shock to her income.",
keywords = "reference point, experiment, decision making, risk",
author = "Ayse Terzi and Kees Koedijk and Noussair, {Charles N.} and Rachel Pownall",
year = "2016",
month = "9",
doi = "10.3389/fpsyg.2016.01347",
language = "English",
volume = "7",
journal = "Frontiers in Psychology",
issn = "1664-1078",
publisher = "Frontiers Media S.A.",

}

Terzi, A, Koedijk, K, Noussair, CN & Pownall, R 2016, 'Reference point heterogeneity' Frontiers in Psychology, vol. 7, 1347. DOI: 10.3389/fpsyg.2016.01347

Reference point heterogeneity. / Terzi, Ayse; Koedijk, Kees; Noussair, Charles N.; Pownall, Rachel.

In: Frontiers in Psychology, Vol. 7, 1347, 09.2016.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Reference point heterogeneity

AU - Terzi,Ayse

AU - Koedijk,Kees

AU - Noussair,Charles N.

AU - Pownall,Rachel

PY - 2016/9

Y1 - 2016/9

N2 - It is well-established that, when confronted with a decision to be taken under risk, individuals use reference payoff levels as important inputs. The purpose of this paper is to study which reference points characterize decisions in a setting in which there are several plausible reference levels of payoff. We report an experiment, in which we investigate which of four potential reference points: (1) a population average payoff level, (2) the announced expected payoff of peers in a similar decision situation, (3) a historical average level of earnings that others have received in the same task, and (4) an announced anticipated individual payoff level, best describes decisions in a decontextualized risky decision making task. We find heterogeneity among individuals in the reference points they employ. The population average payoff level is the modal reference point, followed by experimenter's stated expectation of a participant's individual earnings, followed in turn by the average earnings of other participants in previous sessions of the same experiment. A sizeable share of individuals show multiple reference points simultaneously. The reference point that best fits the choices of the individual is not affected by a shock to her income.

AB - It is well-established that, when confronted with a decision to be taken under risk, individuals use reference payoff levels as important inputs. The purpose of this paper is to study which reference points characterize decisions in a setting in which there are several plausible reference levels of payoff. We report an experiment, in which we investigate which of four potential reference points: (1) a population average payoff level, (2) the announced expected payoff of peers in a similar decision situation, (3) a historical average level of earnings that others have received in the same task, and (4) an announced anticipated individual payoff level, best describes decisions in a decontextualized risky decision making task. We find heterogeneity among individuals in the reference points they employ. The population average payoff level is the modal reference point, followed by experimenter's stated expectation of a participant's individual earnings, followed in turn by the average earnings of other participants in previous sessions of the same experiment. A sizeable share of individuals show multiple reference points simultaneously. The reference point that best fits the choices of the individual is not affected by a shock to her income.

KW - reference point

KW - experiment

KW - decision making

KW - risk

U2 - 10.3389/fpsyg.2016.01347

DO - 10.3389/fpsyg.2016.01347

M3 - Article

VL - 7

JO - Frontiers in Psychology

T2 - Frontiers in Psychology

JF - Frontiers in Psychology

SN - 1664-1078

M1 - 1347

ER -

Terzi A, Koedijk K, Noussair CN, Pownall R. Reference point heterogeneity. Frontiers in Psychology. 2016 Sep;7. 1347. Available from, DOI: 10.3389/fpsyg.2016.01347