Reference-dependent preferences for maternity wards: an exploration of two reference points

Abstract

It is now well established that a person's valuation of the benefit from an outcome of a decision is determined by the intrinsic “consumption utility” of the outcome itself and also by the relation of the outcome to some reference point. The most notable expression of such reference-dependent preferences is loss aversion. What precisely this reference point is, however, is less clear. This paper claims and provides empirical evidence for the existence of more than one reference point. Using a discrete choice experiment in the Israeli public health-care sector, within a sample of 219 women who had given birth, it is shown that respondents refer to two reference points: (i) a constant scenario that is used in the experiment; and (ii) also the actual state of the quantitative attributes of the service (number of beds in room of hospitalization; and travel time from residence to hospital). In line with the loss aversion theory, it is also shown that losses (vis-à-vis the constant scenario and vis-à-vis the actual state) accumulate and have reinforced effects, while gains do not.