What do lab experiments say about the Koszegi-Rabin theory of reference-dependent preferences?

Elath Hall, 2nd floor, Feldman Building, Edmond J. Safra Campus
Sunday, May 21, 2017 - 16:00
Ori Heffetz

Koszegi and Rabin’s (2006, 2007, 2009) model of expectations-based reference-dependent preferences offers a unified explanation for a diverse body of evidence across different domains. However, almost a decade of direct lab tests of the model has generated mixed evidence: in only a subset of (what appear to be) similar experimental setups are lagged-probability-beliefs treatments found to affect behavior as (apparently) predicted by the theory. The present paper aims to investigate why. We take a careful look at existing lab tests of the theory, focusing on effort-provision experiments and on endowment-effect experiments. In each case, we reexamine what the theory predicts and what the experimental design can test. We reinterpret the evidence accordingly. We identify the remaining gaps and propose directions for future research.