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.
| Identifer | oai:union.ndltd.org:arizona.edu/oai:arizona.openrepository.com:10150/621274 |
| Date | 12 September 2016 |
| Creators | Terzi, Ayse, Koedijk, Kees, Noussair, Charles N, Pownall, Rachel |
| Contributors | Univ Arizona, Dept Econ, Univ Arizona, Ecol Sci Lab |
| Publisher | FRONTIERS MEDIA SA |
| Source Sets | University of Arizona |
| Language | English |
| Detected Language | English |
| Type | Article |
| Rights | © 2016 Terzi, Koedijk, Noussair and Pownall. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms. |
| Relation | http://journal.frontiersin.org/article/10.3389/fpsyg.2016.01347/full#h7 |
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