Ulric B. and Evelyn L. Bray Social Sciences Seminar

Abstract: This project examines the role of heterogeneity in gain-loss attitudes for identifying models of expectations-based reference dependence (Kőszegi and Rabin, 2006, 2007) (KR). Different gain-loss attitudes lead to different signs for KR comparative statics. Failure to account for known heterogeneity in gain-loss attitudes could be a central confounding factor challenging prior tests of the KR model conducted under the assumption of universal loss aversion. In an initial experiment with 607 subjects and an exact replication with a further 417, we show heterogeneous treatment effects over gain-loss types. Recognizing heterogeneity in gain-loss attitudes allows us to reliably recover the KR model's central predictions, and can account for inconsistency across prior empirical tests.