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Uri Gneezy, Lorenz Goette, Charles Sprenger, Florian Zimmermann, The Limits of Expectations-Based Reference Dependence, Journal of the European Economic Association, Volume 15, Issue 4, August 2017, Pages 861–876, https://doi.org/10.1093/jeea/jvw020
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Abstract
Theories of expectations-based reference-dependent preferences have provided a critical modeling innovation, incorporating a structured theory of the formation of reference points. An important prediction of these models is a monotone response in behavior to changes in expectations. To test such models we conduct a real-effort experiment manipulating expectations and examining consequences on effort provision. In contrast to the theory, we document substantial nonmonotonicities in the effort response to changing expectations. Our results provide some evidence on the limitations of expectations-based reference dependence. (JEL: D81, D84, D12, D03)