Chair in Economic Policy

Expectation based reference dependence and loss aversion: Field evidence from professional football

  • Date:

    October, 31st 2018

  • Author:

    Erla Hardardottir

  • Source:

    Aarhus University, Department of Economics and Business Economics

  • Reference-dependent preferences are one of the key components of a leading theory on decision-making, Prospect Theory. While the existence of reference-dependent preferences and the significance of their effects on decision-making is well established, the literature has not yet settled on what constitutes the reference-points. A growing number of recent theoretical contributions model reference points as expectations. However, due to the difficulty in observing expectations, field evidence on the effects of expectations-based reference points is scarce. Aiming to contribute to the scarce field evidence, I extend on Bartling et al. (2015) and analyze the presence and effects of reference-dependence and loss-aversion on the behavior of professional football players and their coaches during professional football matches, and show that they do exhibit behavior consistent with Köszegi and Rabin‘s (2006) assumption that reference-points are shaped by expectations.