This thesis studies loss aversion and reference-dependent preferences. The second chapter and the fourth chapter analyze the price strategy for the monopolist with a loss-averse consumer following the reference-dependent model of Kőszegi and Rabin (2006). The second chapter takes into account the happiness of not paying at the highest price and the disappointment of not paying at the lowest price and finds that this happiness has a positive effect on the monopolist's revenue and this disappointment has a negative effect on the monopolist's revenue. The fourth chapter proposes a two-period pricing model and shows that the monopolist could make use of two-price strategy to earn a revenue that is greater than the product value. The revenue of the two-period model is higher than one-period model when the weight of gain-loss utility is big enough. The third chapter studies the winner's regret with bidders when they have reference-dependent preferences in the sealed-bid first-price auction, second-price auction and all-pay auction and shows that the optimal bid is smaller with regret than without regret for loss-averse bidders, is greater for gain-seeking bidders and is the same for risk-neutral bidders.

This dissertation investigates the role of reference-dependent preferences in different areas of application, both from an empirical/experimental and a theoretical perspective. Despite their common focus, all chapters are self-contained and can be read independently. In the first chapter, entitled "Does Loss Aversion Beat Procrastination? A Behavioral Health Intervention at the Gym", I analyze the implications of reference-dependent preferences in the domains of self-control and optimal incentive design. Financial incentives are a common tool to encourage overcoming self-control problems and developing beneficial habits. There are different means by which such incentives can be provided, yet, up to date there is little empirical evidence on the relative effectiveness of different incentive designs. I present the results of a field experiment that explores whether and how incentives that are economically equivalent but framed differently affect the likelihood of exercising at a gym. I find that framing incentives in terms of losses, meaning individuals lose cash incentives by not exercising, encourages more frequent visits to the gym than framing incentives in terms of financial gains. After removing these incentives, I observe habit formation in gym exercise only if incentives were framed as losses rather than gains. The findings are consistent with the concept of reference-dependent preferences and loss aversion and suggest that cost reductions and performance improvements can be achieved if opting to frame incentives in terms of losses. The second chapter, entitled "Salience-adjusted Expectation-based Reference Points: Theory and Experiment", studies the consequences of reference-dependent preferences in the domain of decision making under uncertainty. Recent theories of expectation-based reference-dependent preferences offer a structured approach of the formation of reference points, yet do not incorporate important context-specific characteristics. One implicit assumption is that individuals rationally form their reference point as expectations, by correctly predicting the probabilistic environment they are facing. A second assumption is that in subsequent unanticipated decisionmaking problems, individuals consider previously formed lagged expectations as their reference point. In an experimental setup, I demonstrate that specific contextual factors affect the composition of expectation-based reference points. First, while expectations are formed, outcomes that attract the moment of first focus receive a higher weight. Second, in subsequent unanticipated decision making under uncertainty, the outcomes of the choice set affect to which extent lagged expectations are considered as a reference point, depending on the associated intensity of gains and losses. Finally, apart from providing empirical evidence on the limitations of current theories of expectation-based reference-dependence, I present a theoretical extension that can overcome some of these limitations by allowing reference points to be contingent on salient contextual effects. In the third chapter, entitled "Competitive Persuasive Advertising under Consumer Loss Aversion", I examine the role of reference-dependent preferences in the domain of consumer choice. In particular, I analyze the effects of expectation-based loss aversion in imperfect competition when consumers’ gain-loss utility is susceptible to salience effects. I present a theoretical model in which consumers’ gain-loss utility associated with the expectation to buy the most salient products within their contextual environment is inflated upwards, whereas the gain-loss utility associated with the expectation to buy the least salient products is deflated downwards. Firms can strategically manage consumers’ gain-loss utility by investing in salience-enhancing activities, such as persuasive advertising. If consumers are initially aware of prices but uncertain about their individual match value from the purchase, persuasive advertising has strictly anticompetitive consequences. This is because it allows firms to mitigate consumers’ experienced losses from higher prices, which reduces competitivepressure. / Doctorat en Sciences économiques et de gestion / info:eu-repo/semantics/nonPublished

This thesis studies the labour supply with aspiration-based reference-dependent preferences. The first contribution of the thesis is the theoretical modelling of behavioural contract theory. In Chapter 1, I modify the classical principal-agent model with uncertainty and moral hazard by replacing the Expected Utility preferences of the agent with chance theory preferences (Schmidt and Zank, 2013). Chance theory agents are primarily concerned with the sure wage they can obtain, i.e., the certain component in their contract, as they treat increments in bonuses markedly different to similar changes in sure wages. Similar to the classical predictions, our agents' optimal contracts are contingent payment schemes, however, they differ with respect to the level of the sure wage. I also contrast my predictions to those of the model of Herweg et al. (2010), who assume agents with expectation-based loss-averse preferences. The other contribution of this thesis is the empirical support for the theory of aspiration-based reference-dependent preferences with field data in education economics. In Chapter 2, I study aspiration-based reference-dependent preferences in undergraduate students' performance and effort provision. Students' reference points are set as their targeted grades. I extend a two-period economics-of-education model (Krohn and O'Connor, 2005) by proposing an additional utility function that is based on the difference between the realised grade and targeted grade. I design surveys and collect data by following a group of undergraduate students at the University of Manchester for two semesters of a full academic year with a two-period panel. My results provide evidence for students' reference-dependent preferences in two ways: first, a significant jump in students' proxied utility of grade is found at the reference point, which also implies students are loss averse. Second, the reference point positively affects students' effort provision. I further study the formation of the reference point and its variation over time. My results suggest that students partially update their past realised results into the formation of reference points. Further, the relative change of their reference points depends on the achievement of the past period reference point.

This study examines whether reference levels change over time and the impact on individuals' risk-taking behavior. I apply expectations-based reference-dependent preferences theory to analyze whether individuals' reference levels change over time in an economic setting. The theory suggests that individuals develop reference levels based on expectations of future outcomes (Koszegi and Rabin 2006). Therefore, this study examines whether individuals' expectations affect the setting of their reference level and how possible changes in reference levels affect subsequent risk-taking behavior. This study also provides evidence on how budget-based contracts impact individual risk taking behavior in a single period setting. Prior research has used multiple theories in an attempt to explain contradictory results relating to budget target difficulty and risk-taking behaviors. This study provides more evidence to the literature by further examining the impact of budget-based contracts on individuals' risk-taking behavior. A 1 x 2 between subjects experiment was conducted over five periods. Budget target was the manipulated factor at two levels: easy and moderate. Results suggest that individuals under easy budget targets make riskier decisions. Additionally, individuals' reference levels change over time and the change in reference level is greater for those individuals who continually attain their budget target, suggesting that expectations do increase the reference level. Lastly, in the current study, changes in reference level do not have a significant impact on risky decision making.

This dissertation studies models of belief-dependent motivations in three essays.The first essay studies the Koszegi-Rabin model of reference-dependent preferences in a laboratory experiment. The propose a model where the reference point to which consumption outcomes are compared is endogenously determined as a function of lagged, probabilistic beliefs. This paper presents an experiment designed to test some predictions of the Koszegi-Rabin model. The experimental design controls for potential confounds suggested by their theory. The experimental results support their prediction of an endowment effect but do not show the attachment effect predicted by their model.The second essay, coauthored with Martin Dufwenberg and Matt Van Essen, studies how revenge may mitigate the hold-up problem from contract theory. When contracts are incomplete or unenforceable, inefficient levels of investment may occur due to hold-up. If individuals care for negative reciprocity these problems may be reduced, as revenge becomes a credible threat. However, negative reciprocity has this effect only when the investor holds the rights of control of the investment proceeds. We explore this issue analytically, deriving predictions for hold-up games which differ as regards assignment of rights of control. We also test and support these predictions in an experiment.Revenge may be driven by anger. The third essay proposes two belief-dependent models of anger: frustrated anger and anger from blame, which correspond to differing views of the emotion in the psychology literature. Both models build upon the idea that anger occurs when outcomes differ from players expectations. They differ in that anger from blame also incorporates updated beliefs and a notion of other-responsibility. The models are compared with each other and with existing models of negative reciprocity in several examples.

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The goal of the PhD thesis is to investigate the role of behavioural economics considerations for the performance of conservation auctions. The findings of the three scientific articles suggest that behavioural economics considerations like social (distributional) preferences and reference-dependent preferences may affect the attractiveness and economic performance of conservation auctions, respectively. The results of the first and second articles are based on laboratory experiments conducted with university students, in Germany. The third article implements a field experiment to measure farmers’ preferences over Payments for Ecosystem Services (PES) allocation mechanisms and the role of fairness therein, in the context of agrobiodiversity loss in Benin.

Diese Dissertation besteht aus drei unabhängigen Artikeln in dem Forschungsfeld der Informationsökonomik. Ein wiederkehrendes Motiv in allen drei Artikeln ist die ambivalente Rolle von privater Information. In Kontrast zur klassischen Entscheidungstheorie, in der mehr Informationen Individuen niemals schlechter stellt, analysiere ich drei verschiedene Umgebungen, in denen mehr Konsumenteninformation die Konsumentenrente verringern kann. / This dissertation comprises three independent chapters in the field of information economics. The recurrent theme of all three chapters is the ambiguous role of information: While in standard decision theory additional information enables individuals to weakly increase utility through making better choices, I analyze three di erent environments in which more information to consumers may actually be detrimental to consumer utility.

Die Dissertation besteht aus drei Kapiteln. Im ersten Kapitel wird unter der Bezeichnung “Adjustment Utility” eine neue Komponente individuellen Nutzens eingeführt. Mit einem Experiment, daß ich mit Studenten durchgeführt habe, zeige ich erst, daß diese Nutzenkomponente existiert. Dann entwickele ich ein Modell, welches aufzeigt, wann und in welcher Weise Adjustment Utility den Gesamtnutzen von Individuen sowie ihr ökonomisch relevantes Entscheidungsverhalten beeinflußt. Daten zu HIV Infektionen und der Verwendung von Kondomen in Deutschland zeigt die Relevanz der Modellergebnisse. Das zweite Kapitel betrachtet ein weiteres Experiment, welches zeigt, daß Individuen absichtlich imitieren, auch in Situationen, in denen sie durch Imitation nichts lernen können. Das ergänzt die bisherige experimentelle Forschung, die zwar zeigen konnte, daß individuelles Verhalten mit Imitationsmotiven konsistent ist, bei der das beobachtete Verhalten sich jedoch auch mit genuinen Lernmotiven erklären ließ. Darüber hinaus zeigen die Ergebnisse des Experiments, daß bei der Wahl dessen, den die Individuen imitieren, sie die Ergebnisse ihrer Mitspieler über mehrere Runden berücksichtigen, statt nur das Ergebnis der letzten Runde, wie in der Literatur meist angenommen. Abschließend analysiere ich im dritten Kapitel die Frage, ob staatliche Banken aufgrund der staatlichen Einlagengarantie einen Wettbewerbsvorteil gegenüber privaten Banken haben. Staatliche Banken unterliegen Einschränkungen ihrer Geschäftsstrategie, die durch ihr Mandat begründet sind, die wirtschaftliche Entwicklung zu unterstützen. Das heißt, daß staatliche Banken nicht öffentlich erklären können, alle Kreditnehmer, welche sich in finanziellen Schwierigkeiten befinden, dem Konkurs zu überlassen. Diese Einschränkung gibt privaten Banken die Möglichkeiten, Kreditnehmer durch Selbstselektion zu separieren, in den Markt einzutreten und sogar im Gleichgewicht Gewinne zu erwirtschaften. / The dissertation consists of three chapters. The first chapter considers a novel component of individual utility, which I term “adjustment utility”. In a classroom experiment, I first show that this component of utility exists. I then develop a model to show when and in what way adjustment utility affects overall utility and economic decision making. Data on HIV infections and use of condoms in Germany shows the relevance of the results. For the second chapter I conducted an experiment, which shows that individuals imitate intentionally, even in settings where they cannot learn anything by doing so. This complements previous experimental research, which could show that individual behavior is consistent with imitation motives, but where behavior could also be explained by learning motives. In addition, the results show that when subjects choose whom to imitate, they consider the results of other players over several periods, rather than only of the last period, as assumed in previous work. Finally, in the third chapter, I analyze the question whether state-owned banks have a competitive advantage over private banks due to a state guarantee on their deposits. State-owned banks face a restriction of their business strategies, which is due to their mandate of “supporting economic development”. As a consequence, state-owned banks cannot publicly declare to liquidate all borrowers in financial distress. This offers private banks the opportunity to separate borrowers by self-selection, enter the market and make profits in equilibrium.