TITLE:
Experimental Studies of Impacts of Reference Point and Its Change on Individual Value
AUTHORS:
Jianjiang Qian, Yong Zhao, Jianlin Yu
KEYWORDS:
Prospect Theory, Reference Point, Value Function
JOURNAL NAME:
Theoretical Economics Letters,
Vol.4 No.9,
December
4,
2014
ABSTRACT: Prospect theory believes that value
judgments of decision-makers are associated with reference point. Based on this
intuition, this paper analyzes the impacts of reference point as well as its
change on individual value with two risk selection experiments, which are at
the same wealth level but have different reference points. Experiments find
that reference point has significant influences on value function and decision
weight at the same wealth level. Moreover, via the value function diagram, we
find that the value of a certain wealth level rising from a relatively low
reference point is higher than the value of the same wealth level declining
from a relatively high reference point which initially is raised from the lower
reference one. Intuitively, it also explains that the changes of the reference
point will lead to a decline in the overall value of decision-maker.