Role Of Reference Points Research Articles

The role of reference points and organizational identity in strategic adaptation to performance feedback

PurposeThis study aims to elucidate reference points and organizational identity in letters to shareholders (LTSs) of publishing companies and develops propositions on their relation to strategic adaptation. This study examines how characteristics of reference points (number, temporality and specificity) and organizational identity (focus, discontinuity and distinctiveness) relate to strategic adaptation. This research advances performance feedback theory and behavioral strategy by presenting rich data on how managers use reference points. This study also theorizes on the role of organizational identity as an observation frame. Finally, this study informs managers on how they can adapt reference points and organizational identity to drive strategic adaptation in their organizations.Design/methodology/approachThis paper uses text analysis of LTSs of eight companies in the global publishing industry over six years. The research design is an exploratory, comparative case study.FindingsThe authors present the findings of rich empirical data analysis of reference points and organizational ideology, develop a typology and propose three proposed relationships. This paper develops three propositions on how characteristics of reference points (number, temporality and specificity) and organizational identity (focus, discontinuity and distinctiveness) relate to strategic adaptation.Originality/valueThis study elucidates reference points that managers use when they make sense of performance feedback. This study further develops a typology of reference points and suggests propositions on how reference points and organizational identity relate to strategic adaptation. The novel linguistic approach to revealing reference points-in-use and the study of decision-making in its empirical context contribute to a better understanding of the micromechanims of decision-making that are central to behavioral strategy.

Modeling Newsvendor Behavior: A Prospect Theory Approach

Problem definition: Studies have shown that the behavior of subjects in newsvendor experiments is not consistent with expected profit maximization—an assumption that is often made in operations management literature. Although prospect theory has been established as a popular model of behavioral decision making under uncertainty, it was considered to be inconsistent with observed newsvendor behavior (in particular, the pull-to-center effect) until a recent study by Long and Nasiry [Long X, Nasiry J (2015) Prospect theory explains newsvendor behavior: The role of reference points. Management Sci. 61(12):3009–3012.] proposed a prospect theory model that is consistent with the pull-to-center effect; however, this model’s ability in representing newsvendor behavior compared to other plausible prospect theory models is unexplored in the literature. This paper takes a more comprehensive approach in building several prospect theory-based newsvendor models and evaluates their competence in representing the observed newsvendor behavior. An important feature of these models is that they are not only consistent with the pull-to-center effect, but they can also, in accordance with the findings from recent research, accommodate individual-level heterogeneity in order quantities. Academic/practical relevance: Designing effective supply chain processes and inventory systems requires that the underlying models represent the observed newsvendor behavior reasonably well, especially in settings where most decisions are made by individuals. Our paper provides a rigorous basis for choosing a model when characterizing the decision making process of a newsvendor. Moreover, our novel approach to model building and testing could serve as a template for selecting appropriate prospect theory models in contexts other than the newsvendor problem. Methodology: Motivated by different types of reference points studied in the decision theory literature, we first build several newsvendor models that can theoretically accommodate individual-level heterogeneity in order quantities. Thereafter, using a multipronged approach based on theoretical criteria, goodness of fit, and empirical validity, we evaluate these models to determine the most appropriate model. Results: The model with mean demand as the stochastic reference point consistently outperforms other models, reducing the prediction error by as much as 31% on the experimental data used for this study. Moreover, all the empirical regularities considered in our paper are consistent only with this model. This suggests that mean demand is more likely to be adopted by experimental subjects as a reference point—perhaps because of its greater salience than the other plausible reference points considered. Managerial implications: Since decisions are made predominantly by human retailers in the emerging markets, we represent their behavior by the model with mean demand as the reference point and identify settings in which they could benefit from investing in decision support systems. We also demonstrate the benefits to a supplier from approximating his retailers’ behavior with this model relative to him using the other prospect theory models considered in this paper.

Wage Elasticities in Working and Volunteering: The Role of Reference Points in a Laboratory Study

We experimentally test how effort responds to wages—randomly assigned to accrue to individuals or to a charity—in the presence of expectations-based reference points or targets. When individuals earn money for themselves, higher wages lead to higher effort with relatively muted targeting behavior. When individuals earn money for a charity, higher wages instead lead to lower effort with substantial targeting behavior. A reference-dependent theoretical framework suggests an explanation for this differential impact: when individuals place less value on earnings, such as when accruing earnings for a charity instead of themselves, more targeting behavior and a more sluggish response to incentives should result. Results from an additional experiment add support to this explanation. When individuals select into earning money for a charity and thus likely place a higher value on those earnings, targeting behavior is muted and no longer generates a negative effort response to higher wages.Data and the online appendix are available at https://doi.org/10.1287/mnsc.2017.2870 .This paper was accepted by Uri Gneezy, behavioral economics.

Wage Elasticities in Working and Volunteering: The Role of Reference Points in a Laboratory Study

Volunteers provide a large source of labor in the United States, yet volunteer effort is often unresponsive to traditional incentives. To investigate the sources of this unresponsiveness within volunteering, we appeal to a classic explanation: targeting behavior. In particular, we provide a laboratory test of effort response to changes in wages, either accrued to individuals or to a charity, in the presence of expectations-based reference points or targets. When individuals earn money for themselves, higher wages lead to higher effort with relatively muted targeting behavior. When individuals earn money for a charity, higher wages instead lead to lower effort with substantial targeting behavior. For managers contemplating the use of performance goals or targets to encourage more volunteer effort, our results suggest careful consideration about the extent to which they may render other incentives less effective.

The Unemployment Volatility Puzzle: A Note on the Role of Reference Points

This theoretical note aims at studying the role of reference points in generating unemployment volatility. For this purpose, I introduce the notion of reference points in a standard Mortensen-Pissarides model. I obtain two results. First, I find that the obtained model is similar to the one found by Pissarides in 2009. Second, I show that the introduction of reference points can increase significantly unemployment volatility through a mechanism a la Hagerdorn and Manovskii.

The role of reference point in CEO restricted stock and its impact on R&D intensity in high‐technology firms

Prior work based on agency theory and behavioral agency model has focused on how absolute pay values affect firm outcomes. Departing from this traditional approach, we draw from behavioral decision theory to explain how relative pay levels influence firm risk taking. We investigate how CEO restricted stock value relative to reference point influences R&D intensity in high‐technology firms. We propose that negative deviation increases are related to R&D increases and positive deviation increases lead to R&D decreases, while negative deviation has greater effect than positive deviation. We establish theoretical boundary conditions by considering CEO duality and board vigilance as moderators. Drawing from agency theory, we predict the main effects will be enhanced under duality and weakened under high board vigilance. Our hypotheses are largely supported. Copyright © 2014 John Wiley & Sons, Ltd.

The Role of Reference Point in CEO Restricted Stock and Its Impact on R&D Intensity

Agency theory has focused on how absolute pay values align divergent interests of CEOs and shareholders. However, behavioral decision theory suggests that considering reference points in pay matter...

Time After Time: The Psychological Reality of the Ego- and Time-Reference-Point Distinction in Metaphorical Construals of Time

Research in cognitive linguistics and in processing of temporal metaphors has traditionally distinguished between Moving-Ego and Moving-Time mappings: Either the Ego is construed as moving regarding fixed temporal landmarks or Time is construed as moving regarding the Ego. Both of these metaphors involve time events in reference to an Ego, which specifies the present time Now.We build on recent theoretical suggestions for a more fundamental classification of temporal metaphors: Ego- and Time-Reference-Point metaphors (Ego-RP and Time-RP). The distinction focuses on the role of reference points in ascribing orientation, rather than on the identity of a moving entity (Ego or Time). Using visual priming experiments we provide evidence of the psychological reality of the Time-RP metaphor, a temporal metaphor with no reference to an Ego.

Disconnecting Outcomes and Evaluations: The Role of Negotiator Reference Points

Two experiments explored the role of reference points in disconnecting objective and subjective utility in negotiations. Negotiators who focused on their target prices, the ideal outcome they could obtain, achieved objectively superior outcomes compared to negotiators who focused on a minimum goal, their best alternatives to the negotiation (BATNAs). Those negotiators who focused on their targets, however, were less satisfied with their objectively superior outcomes. In the final experiment, when negotiators were reminded of their minimum goal before filling out the satisfaction measure, the satisfaction of those negotiators who had focused on their targets was increased, with outcomes and evaluations becoming connected rather than disconnected. The possible negative effects of setting high goals and the potential future consequences of this reference-point induced disconnection between outcomes and evaluations are discussed.

Referent Cognitions Theory: The role of closeness of reference points in the psychology of voice.

The most generally accepted and best documented manipulation in procedural justice experiments is varying whether or not participants are allowed an opportunity to voice their opinion about a decision. To better understand the psychology of voice, the authors focus on Referent Cognitions Theory (RCT). It is argued that thus far RCT has not been used to explain the psychology of voice and that previous RCT research suffers from methodological problems and has been more outcome oriented than necessary. Two experiments resolve these problems and show that people react more strongly to procedures (especially no-voice procedures) when reference points are close as opposed to distant. These findings suggest that closeness of reference points plays an important role in the psychology of voice. The findings expand RCT in significant ways and indicate that insight into the role of reference points is essential for understanding the psychology of justice.

An empirical analysis of the role of reference point in justice perception in R&D settings in Korea

Abstract This study examines the relationship of the respondent's reference point with regards to distributive and procedural justice in an R&D setting in Korea. The two characteristics: (1) the rewards difference between Korean public and private R&D institutes (the outcome level at the public R&D institutes is much less than that at the private ones), (2) and the similarity of procedures being used to determine R&D professional's rewards at both types of research institutes, provide an excellent real-life setting for studying the role of reference point. To avoid common method variance, we measured distributive and procedural justice separately. Consistent with the previous experiments, R&D professionals at the public R&D institutes indicated differentiated distributive justice levels according to R&D professionals' reference points. Results also showed that the presence of a social comparison other (suggested reference point) leads the R&D professionals at public R&D institutes to perceive procedural injustice. Finally, several theoretical and managerial implications were discussed.

Managing fisheries within ecosystems: can the role of reference points be expanded?

Managing fisheries within ecosystems: can the role of reference points be expanded?

Managing fisheries within ecosystems: can the role of reference points be expanded?

Managing fisheries within ecosystems: can the role of reference points be expanded?

Reference points, loss aversion, and contingent values for auto safety

This article is concerned with the possible role of reference points and loss aversion (as suggested by prospect theory) in subjects' judgments about the value of increments and decrements in automobile safety. The contingent valuation method is employed in two experiments, both of which consider subjects' willingness-to-pay (WTP) for increased safety and compensation demanded (CD) for decreased safety in hypothetical new vehicle purchases. The results establish that disparities exist in subjects' WTP and CD values for the same increment of auto safety, even for a close-to-market context such as hypothetical new vehicle purchases. The results also indicate that evaluations can be manipulated by changing the perception of the reference point: losses can be recast as forgone gains and forgone gains as losses, altering (or even eliminating) differences between WTP and CD values.

Reference points, anchors, norms, and mixed feelings

The article reviews theoretical analyses and some recent evidence on the role of reference points and anchors in individual choice, and considers possible implications of these analyses for a treatment of negotiation. Reference points are characterized by the abrupt changes in the valuation of gains and losses and of acceptable or reprehensible behavior. Norm theory is applied to the treatment of mixed feelings about outcomes to which multiple reference points are relevant. Anchoring effects in judgment are analyzed in terms of a memory process that assigns normality to possible values.

To win and lose: Linguistic aspects of prospect theory

Abstract This paper elaborates upon the linguistic implications of results centred around prospect theory, a decision-theoretic framework that so far has been applied in psychology, economics, political science and sociology. One of the goals of prospect theory has been to account for cases where the reformation to decision-theoretic options (expressible as “gains” or “losses”) altered the preference order of individuals. Framing effects of this kind are entwined with a number of linguistic issues that are the topic of this paper relative to the domain under discussion: the granularity of meaning (including the status of thematic roles and the foreground/background distinction); the role of reference points; the relationship of semantic and conceptual structure; and information packaging. The paper also looks at the interface between the semantics of verbs related to “winning” and “losing” and the pragmatic principles of prospect theory.