The Role of Reference-Dependent Preferences in Auctions and Negotiations

Start year: 2014

Summary: Expected utility is the traditional workhorse for applications of Game Theory to Economics. A large body of experimental evidence, however, shows that people's attitudes toward risk are better captured by a model in which outcomes are framed as gains and losses relative to a reference point (reference dependence), with losses being more painful than gains are pleasant (loss aversion). To date, the applicability of reference-dependent preferences to Game Theory has not been fully explored. The goal of this project is to analyze the role of reference-dependent preferences and loss aversion in contexts of strategic interaction. I look at three well known applications of game theory in economics: auctions, bargaining and non-linear pricing.

Keywords: Auctions, Bargaining, Loss Aversion

FOR Codes: Industry Economics and Industrial Organisation, Microeconomics not elsewhere classified, Microeconomic Theory, Mathematical Economics, Industrial Organisations, Industry economics and industrial organisation , Mathematical economics , Microeconomic theory

Acknowledgement of Country

UTS acknowledges the Gadigal people of the Eora Nation, the Boorooberongal people of the Dharug Nation, the Bidiagal people and the Gamaygal people, upon whose ancestral lands our university stands. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands.