Testing for Reference Dependence: An Application to the Art Market

Alan Beggs and Kathryn Graddy ()

No 228, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: This paper tests for reference dependence, using data from Impressionist and Contemporary Art auctions. We distinguish reference dependence based on rule of thumb learning from reference dependence based on rational learning. Furthermore, we distinguish pure reference dependence from effects due to loss aversion. Thus, we use actual market data to test essential characteristics of Kahneman and Tversky`s Prospect Theory. The main methodological innovations of this paper are firstly, that reference dependence can be identified separately from loss aversion. Secondly, we introduce a consistent non-linear estimator to deal with measurement errors problems involved in testing for loss aversion. In this dataset, we find strong reference dependence but no loss aversion.

Keywords: Reference Dependence; Loss Aversion; Prospect Theory; Art; Auctions (search for similar items in EconPapers)
JEL-codes: D44 D81 L82 (search for similar items in EconPapers)
Date: 2005-03-01
New Economics Papers: this item is included in nep-cul, nep-ecm and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Testing for Reference Dependence: An Application to the Art Market (2005)
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