The Rubinstein alternating offers bargaining game is reconsidered under the assumption that each player is loss averse and the associated reference point is equal to the highest turned down offer of the opponent in the past. This makes the payoffs and therefore potential equilibrium strategies dependent on the history of play. A subgame perfect equilibrium is constructed, in which the strategie...

This paper presents a theory of multi-alternative, multi-attribute preferential choice. It is assumed that the associations between an attribute and an available alternative impact the attribute's accessibility. The values of highly accessible attributes are more likely to be aggregated into preferences. Altering the choice task by adding new alternatives or by increasing the salience of preexi...

Reference points and loss aversion are two essential and commonly used concepts in behavioral economics. In this paper, based on insight of Loewenstein’s (1988) reference point model, we construct a structural model for intertemporal choice with reference points and loss aversion by considering four scenarios: delay of gains, delay of losses, speed-up of gains, and speed-up of losses. We use pa...

Loss aversion in choice is commonly assumed to arise from the anticipation that losses have a greater effect on feelings than gains, but evidence for this assumption in research on judged feelings is mixed. We argue that loss aversion is present in judged feelings when people compare gains and losses and assess them on a common scale. But many situations in which people judge and express their ...

This paper consider optimization decision-making of closed-loop supply chain based on revenue sharing contract and prospect theory, and study the effect of lose aversion on the performance of closed-loop supply chain. We establish a decision-making model for the closed-loop supply chain which consists a loss averse retailer and a loss averse manufacturer. Through the analysis of this model unde...

In this paper, we present an analytical model to investigate how the optimal production strategy of new energy vehicles (NEVs) is influenced by subsidy, market fluctuation, and loss aversion. We find that a loss averse decision maker may produce more production quantity than the optimal quantity in risk neutrality under the certain conditions. We demonstrate that the expected utility is substan...

The Nash equilibrium solution concept for strategic form games is based on the assumption of expected utility maximization. Reference dependent utility functions (in which utility is determined not only by an outcome, but also by the relationship of the outcome to a reference point) are a better predictor of behavior than expected utility. In a repeated situation, the value of the previous payo...

This paper reviews recent advances in the modelling of hedonic utility and the measurement of its physiological correlates. The paper also argues that incorporating hedonic experiences can enrich economic models. An example of such an application — a principal–agent model with moral hazard — is presented and thoroughly analyzed. Its implications are then compared with the structure of incentive...

This paper studies the wealth and pricing implications of loss aversion in the presence of arbitrageurs with Epstein-Zin preferences. Our analysis shows that if loss aversion is the only difference in investors’ preferences, then for empirically relevant parameter values, loss-averse investors will be driven out of the market and do not affect long run prices. The selection process is slow in t...