Where Do You Want to Go Skiing? The Effect of the Reference Point and Loss Aversion



Year of publication 2019
Type Article in Periodical
Magazine / Source Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis
MU Faculty or unit

Faculty of Economics and Administration

Web https://acta.mendelu.cz/media/pdf/actaun_2019067010243.pdf
Doi http://dx.doi.org/10.11118/actaun201967010243
Keywords prospect theory; reference point; loss aversion; preference shifts; marketing
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Description This paper has explored the effect of loss aversion and changes of reference points in a hypothetical choice experiment in microeconomic consumption behavior. We confirm that people tend to prefer alternatives that do not compare unfavorably to other options in the choice set (i.e. people are loss averse). We also confirm that the evaluation of alternatives is reference dependent: by adding different alternatives to a choice set the relative (mutual) attractiveness of the remaining alternatives can be reversed (e.g., A is chosen over B in a choice set including C1, but B is chosen over A in a choice set including C2). The choice tasks we employed were based on real offers from an actual travel agency. This enhances the external validity of our findings that in general the role of the reference point and loss aversion has a significant impact on the consumer’s behavior. Thus, our results suggest the possibility of a relatively simple and practical application of prospect theoretical principles in marketing campaigns. We expect that our findings might be added to a growing body of literature on using the prospect theory for understanding and predicting consumer’s behavior. However, with small sample size, caution must be applied, as the findings might not be transferable to all conditions. Another significant limitation that needs to be considered is the survey method used. The results are not captured from the real marketplace; the only likely choice was made. When making an actual decision, the respondents might act differently than stated in the questionnaire.
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