e-space
Manchester Metropolitan University's Research Repository

A Revealed Reference Point for Prospect Theory

Werner, Katarzyna and Zank, H (2018) A Revealed Reference Point for Prospect Theory. Economic Theory. ISSN 0938-2259

[img]
Preview

Available under License Creative Commons Attribution.

Download (403kB) | Preview

Abstract

Without an instrument to identify the reference point, prospect theory includes a degree of freedom that makes the model difficult to falsify. To address this issue, we propose a foundation for prospect theory that advances existing approaches with three innovations. First, the reference point is not known a priori; if preferences are reference-dependent, the reference point is revealed from behavior. Second, the key preference axiom is formulated as a consistency property for attitudes towards probabilities; it entails both a revealed preference test for reference-dependence and a tool suitable for empirical measurement. Third, minimal assumptions are imposed for outcomes, thereby extending the model to general settings. By incorporating these three features we deliver general foundations for prospect theory that show how reference points can be identified and how the model can be falsified.

Impact and Reach

Statistics

Downloads
Activity Overview
114Downloads
243Hits

Additional statistics for this dataset are available via IRStats2.

Altmetric

Actions (login required)

View Item View Item