Reference Point Effects Research Articles

Research on the Phase Center of Uniform Linear Array

Accurate estimation of array’s phase center is of great importance in navigation, tracking and other aircraft and aerospace systems. In this paper first the effect of reference point on the phase pattern of a uniform linear array is studied and the phase center of the array is estimated. Then the effect of beamsteering on the location of phase center in phased arrays is theoretically analyzed, finally numerical simulations are carried out and the results are in good agreement with the theoretical analysis.

Asymmetric Impact of Reference Point Confidence on Consumer Evaluations

In this paper, we uncover an interesting interplay between sensitivity to losses and reference point confidence. We define reference point confidence (RPC) and investigate how it moderates the sensitivity to gains and losses within the prospect theory framework. Our results from three studies show that RPC has an asymmetric effect on gain and loss sensitivities. RPC also impacts how consumers evaluate performance levels that match the reference point. These results show that RPC can help explain the heterogeneity in reference point effects across consumers. We empirically identify drivers of RPC for price and non-price attributes.

From the Editors

From the Editors

The Reference Point Effect on Executive Compensation -- A Behavioural Approach

We study Chinese executive compensation by fully addressing the impact of reference point on executive compensation design from behavioural approach. We find the Chinese executive pay setting is heavily influenced externally by the pay level of their peer groups, internally by the other executives within firms and by their own pay level in the previous period. We also find that the integrated effect of the three reference points on executive pay settings is stronger than for each individual reference point. Therefore, our study provides empirical evidence from the perspective of emerging markets to support the application of reference point theory on executive pay setting. We demonstrate that the behavioural-orientated approach provides a more robust explanation on the determinants of executive compensation in addition to the performance-link.

How Does the Stock Market Value Corporate Social Performance? When Behavioral Theories Interact with Stakeholder Theory

This study examines how the reference-point effect and sunk-cost fallacy interact with stakeholder theory and influence how investors evaluate corporate social performance. We propose that ex-ante (pre-IPO) corporate social performance influences ex-post (post-IPO) perceived riskiness and that this relationship is U-shaped. We also evaluate how CEO duality and company age moderate this U-shaped relationship. Using young and newly public entrepreneurial firms in China, and focusing on stock returns in the secondary market, empirical results and robustness tests provide strong support for our hypotheses.

The Effect of Reference Point Prices on Mergers and Acquisitions

The Effect of Reference Point Prices on Mergers and Acquisitions

Research on Platform of Testing Reference Point Effect under Managerial Decision-making Simulation Environment

Research on Platform of Testing Reference Point Effect under Managerial Decision-making Simulation Environment

The effect of reference point prices on mergers and acquisitions

Prior stock price peaks of targets affect several aspects of merger and acquisition activity. Offer prices are biased toward recent peak prices although they are economically unremarkable. An offer's probability of acceptance jumps discontinuously when it exceeds a peak price. Conversely, bidder shareholders react more negatively as the offer price is influenced upward toward a peak. Merger waves occur when high returns on the market and likely targets make it easier for bidders to offer a peak price. Parties thus appear to use recent peaks as reference points or anchors to simplify the complex tasks of valuation and negotiation.

Representational pseudoneglect and reference points both influence geographic location estimates

Our mental representation of the world is far from objective. For example, western Canadians estimate the locations of North American cities to be too far to the west. This bias could be due to a reference point effect, in which people estimate more space between places close to them than far from them, or to representational pseudoneglect, in which neurologically intact individuals favor the left side of space when asked to image a scene. We tested whether either or both of these biases influence the geographic world representations of neurologically intact young adults from Edmonton and Ottawa, which are in western and eastern Canada, respectively. Individuals were asked to locate North American cities on a two-dimensional grid. Both groups revealed effects of representational pseudoneglect in this novel paradigm, but they also each exhibited reference point effects. These results inform theories in both cognitive psychology and neuroscience.

Influence of reference points in ex post evaluations of rail infrastructure projects

The paper study the effect of different reference points in time regarding the ‘before’ and ‘after’ situation and how this may influence the ex post evaluation. Four Norwegian railway projects are analysed ex post. We have found that the choice of reference points that are chosen to represent the situation before and after a project, respectively, will often have a major impact on the result of an evaluation. In fact, the studied projects can be presented as either successes or failures, depending on the choice of reference years. The parameters used in this comparison are punctuality, frequency, travel time, and number of travellers. Four projects have been studied. Four parameters for each project generate a total of 16 indicators. By selecting certain years as reference years, 11 of the 16 indicators can be presented as either an increase or decrease. Stakeholders with a biased agenda towards certain projects can actually pick reference years to present the outcome of projects in a way that that fit their agenda. It is recommended that more than one measurement approach is applied in ex post evaluations.

The Effect of Reference Point of the Feedback-related ERPs

Some researches have investigated the relativity in outcome evaluation,but it is unclear about what the reference point is and its brain mechanism when the participants evaluate the relative value and relative magnitude.Enlightened by "Prospect theory" of reference point effect,we speculate that the feedback-related ERPs may represent reference point effect.In order to explore the hypothesis,this research distinguished the relative information based on a reference point and the absolute information based on zero by using Bet-feedback money gamble task.Event-related brain potentials(ERPs)were measured when 12 healthy college students did Bet-feedback money gamble task.We mainly analyzed ERPs elicited by the five feedbacks outcome following two bet conditions.The results showed a similar tendency in FRN and P300.The amplitude of the FRN elicited by the first feedback was largest,and the amplitude of the FRN elicited by the fifth feedback was smallest,and the amplitudes of the FRN elicited by the second,third and fourth feedbacks were intermediate between that of the first and that of fifth feedback.The difference between the amplitude of the P300 elicited by the first feedback and that by the fifth feedback was not significant,while the amplitudes of the P300 elicited by the other three feedbacks did not show significant difference.The amplitudes of the P300 elicited by the first feedback and by the fifth feedback are larger than those of the other three feedbacks.In summary,the results showed that the amplitudes of both FRN and P300 elicited by the second,third and fourth feedbacks,in which the financial gap between bet and feedback is small in relative magnitude,are not significantly different;the amplitudes elicited by the three feedbacks and those elicited by the first and fifth feedbacks,in which the financial gap between bet and feedback is large in relative magnitude,show significant difference.These results revealed that feedback-related ERPs reflect the processing of relative information based on a reference point,but the reference point was not the bet but the space where bet was.By reference to the space where bet was,the amplitude of FRN elicited by loss(i.e.the first feedback)was larger than that of gain(i.e.the fifth feedback)and the amplitude of FRN elicited by even(i.e.the other three feedbacks)was in the middle.According to the space of bet,the amplitude of P300 elicited by the larger feedback in relative magnitude is larger than that of the smaller feedback in relative magnitude,while the amplitude of P300 elicited by the equal feedback in the relative magnitude is not different significantly.Therefore,the feedback-related ERPs reflected the processing of the relative information based on the space of bet,showing effect of reference point,rather than the processing of the absolute information referring to point of zero.

The effects of reference point, knowledge, and risk propensity on the evaluation of financial products

Evaluating and choosing a financial product often requires a trade-off between risk and returns on investment, as a riskier product may yield a higher return. We examine the effect of different reference points (i.e., a riskier reference vs. a safer reference) on the evaluation of a financial product when attributes are explicitly traded off during the evaluation. Our findings suggest that a safer reference increases the attractiveness of the focal product under evaluation, while a riskier reference point does not affect that evaluation. The safer reference point appears to facilitate the risk-seeking tendency in financial decision-making. Further, two types of consumer knowledge, namely, objective and subjective, can moderate the effect of the reference point. Subjective knowledge negatively affects attribute-based objective evaluations, promoting instead the use of external reference information. A discrepancy between the two types of knowledge (i.e., over-confidence), in particular, can cause a more biased evaluation.

Labeling Context and Reference Point Effects in Models of Food Attribute Demand

There is considerable interest in the effect of labels on food product demand. Labeling statements may convey new information about attributes and place consumers in different choice contexts; consumers' assessment of information in labels may be affected by reference points. We examine labeling context relating to genetically modified (GM) food as a factor in the stochastic component of a random utility model and assess reference points over a set of observable characteristics of consumers. We find that labeling context effects are present, although relatively small, while reference dependence is a very important factor that varies over observable characteristics of the sampled consumers.

Bargaining Stances and Outcomes in Buyer–Seller Negotiations: Experimental Results

SUMMARYBuyer–supplier relationships are affected by contractual negotiations between the respective parties. This paper examines the variables likely to influence the outcomes of a two‐party negotiation in an experiment that reproduces some of the details encountered in real‐life negotiations. The study used two‐party negotiations to examine the effect of reservation prices, aspiration prices and competitive stance on the outcome of the negotiations. The study confirms the importance of reference points, and that negotiators may adjust their reference points during the negotiation. The results also suggest that the negotiator's bargaining stance has a significant influence on settlement price and may act as a moderator of the effect of reference points on settlement price. Finally, the analysis suggests that a negative bargaining zone does not necessarily lead to an impasse; however, it increases the risk of an impasse compared with a negotiation with a positive bargaining zone.

The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior

Sellers often explicitly suggest to buyers that they compare one option to other (reference) options. Building on the notion that loss aversion is more pronounced when comparisons are explicit rather than implicit, we propose that the mere fact that consumers are explicitly told to make particular comparisons induces more risk-averse, cautious choice and bidding behavior. This proposition was supported in a field experiment involving real online auctions, in which comparisons among listings either were done spontaneously by bidders or were encouraged using an explicit instruction to compare the focal auction with adjacent listings. Results showed that explicit reference points (1) diminished the influence of adjacent auction prices on the focal auction’s price; (2) led participants to submit fewer, lower, and later bids; (3) increased the incidence of sniping; (4) decreased bidding frenzy; and (5) decreased the tendency to bid on multiple items simultaneously. The impact of explicit comparisons on risk-averse behavior was further tested in a very different context using a laboratory choice experiment. In that study, explicit instructions to compare option sets increased the tendency to choose the compromise, low-risk, and all-average alternatives. We discuss the theoretical and practical implications of this research.

The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior

Providing explicit instructions to compare one option to other (reference) options is one of the most basic and commonly used promotional and persuasion tactics. Building on prior research on persuasion knowledge and the impact of suspicion, we propose that the mere fact that consumers are explicitly encouraged to make particular comparisons induces more cautious and careful purchase and bidding behavior. This proposition was supported in a field experiment using online auctions, in which comparisons among listings were either done spontaneously by bidders or were encouraged using an explicit instruction to compare the focal with adjacent listings. A follow-up laboratory experiment provided evidence that a seller who explicitly suggests reference points is perceived as less trustworthy. A third study extended these findings to consumer choice, showing that explicit instructions to compare increase the tendency to make cautious choices (e.g., choose compromise, low risk, and average options). We discuss the theoretical and practical implications of this research.

The measurement of preferences over the distribution of benefits: The importance of the reference point

This paper uses the Atkinson method, which was initially developed to measure the shape of the social welfare function (SWF) in the domain of income, to measure the shape of the SWF with respect to the distribution of health benefits. Two separate studies were conducted involving a total of 71 respondents. A comparison of the results across the two studies suggests that reference point effects play an important role in determining responses. Thus, more research is needed on the role that reference point effects ought to and do play in determining the nature and extent of the efficiency – equity trade-off before the results of studies of this kind can be interpreted as ‘equity parameters’ which may simply be ‘plugged into’ an appropriately specified SWF.

Multiple reference points in satisfaction and fairness assessment

Most studies of reference point effects have used a single referent, such as a price, a salary, or a target. There is considerable evidence that the judged fairness of, or satisfaction with, an outcome is significantly influenced by discrepancies from such single referents. In many settings, however, more than one reference point may be available, so the subject may be confronted simultaneously with some referents above, some at, and some below the focal outcome. Little is known about the simultaneous impact of such multiple reference points. We examine here the effects of two referents on ratings of salary satisfaction and fairness. Subjects were presented with a series of scenarios that described a salary offer made to a hypothetical MBA graduate and provided information about the salary offers made to either one or two other similar graduates. For each scenario, subjects judged how fair the focal graduate would feel the offer to be, and how satisfied he or she would be with it. Satisfaction ratings displayed asymmetric effects of comparisons: the pain associated with receiving a salary lower than another MBA is greater than the pleasure associated with a salary higher than the other student by the same amount. Fairness ratings showed a different pattern of asymmetric effects of discrepancies from the reference salaries: the focal graduate's salary was judged somewhat less fair when others received lower offers, and much less fair when others received higher offers. The asymmetric effects occurred for both reference points, suggesting that the focal salary was compared separately to each of the referents rather than to a single reference point formed by prior integration of the referents. Copyright © 2000 John Wiley & Sons, Ltd.

Single and multispecies reference points for Baltic fish stocks

Gislason, H. 1999. Single and multispecies reference points for Baltic fish stocks. –ICES Journal of Marine Science, 56: 571–583.Single and multispecies models are used to examine the effect of species interaction onbiological reference points for cod, herring, and sprat in the Baltic. The resultsdemonstrate that reference points are different in single and multispecies contexts.Reference points for fishing mortality based on single-species yield and SSB calcula-tions are difficult to use when natural mortality depends on the absolute abundance ofthe predators and their alternative prey. Reference points based on maximizing totalyield from the system may lead to impractical results when species interact. Multispe-cies predictions suggest that the cod stock in the Baltic should be reduced to a very lowlevel of biomass in order to benefit from the higher productivity of herring and sprat,its major prey. Such a result stresses the need for incorporating socio-economicconsiderations in the definition of target reference points. Management advice basedon biomass reference points will also differ. In the single species situation thecombinations of cod and pelagic fishing effort for which the equilibrium spawning-stock biomass of the three species is above the biomass reference points forms arectangular area. When biological interaction is taken into account the limits of thisarea becomes curved. Reference limits for forage fish cannot be defined withoutconsidering changes in the biomass of their natural predators. Likewise, referencelimits for predators cannot be defined without considering changes in the biomass oftheir prey.

The Effect of Multiple Reference Points and Prior Gains and Losses on Managers′ Risky Decision Making

This study examines the impact of two contextual features of decision settings on managers′ risky behavior. Considerable research indicates that decision makers exhibit risk avoiding or risk taking behavior depending upon whether options are viewed as gains or losses with respect to a given reference point. We argue in this paper that multiple points of reference are important determinants of risky behavior in many decision contexts, and that research should explicitly consider their effect to fully understand and predict risky behavior. The analysis of contextual features is extended to consider the impact of prior gains and losses in the second part of the paper. Seventy-two professional corporate managers participated in two experiments that involved a corporate investment decision setting. The setting exemplifies a context that has both multiple important points of reference and prior gains and losses. The data indicated that the presence of multiple relevant reference points results in a complex pattern of risky behavior, where managers′ decisions to accept or avoid risk were affected by the relative positions of risky alternatives with respect to two important points of reference. In particular, a mixture of risk taking and risk avoiding occurred for options between the relevant reference points. The managers were also found to be more willing to accept risk after experiencing a prior gain as opposed to a prior loss. These findings point to the importance of considering such task characteristics when attempting to predict and understand risky behavior across a variety of task contexts.