Munich Personal RePEc Archive

Prospect Theory and Reference Point Adaptation: Evidence from the US, China, and Korea

Arkes, Hal and Hirshleifer, David and Jiang, Danling and Lim, Sonya (2007): Prospect Theory and Reference Point Adaptation: Evidence from the US, China, and Korea.

WarningThere is a more recent version of this item available.
Full text not available from this repository.

Abstract

We examined prospect theory and reference point adaptation following gains or losses using participants from China, Korea, and the US. Supporting prospect theory, we found in Studies 1 and 2 that subjects from all three countries generally exhibited loss aversion and a greater propensity for risk seeking in the loss domain than in the gain domain. In Study 3 we used the Becker, DeGroot, and Marschak (1964) procedure to ascertain the valuation subjects placed on a gamble after either a prior gain or a prior loss on a stock. After inferring the shift in each subject’s reference point following this prior gain or loss, we found that reference point adaptation following a gain exceeded that following a loss in all three countries. In our third study we also had subjects sell and then immediately repurchase a stock that had experienced a prior gain or loss, which was designed to “punctuate” or close the mental account containing the prior gain or loss. This manipulation caused an increase in reference point adaptation among the Americans but a decrease among the Asians.

Available Versions of this Item

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.