Experimental Studies of Impacts of Reference Point and Its Change on Individual Value

Abstract

Prospect theory believes that value judgments of decision-makers are associated with reference point. Based on this intuition, this paper analyzes the impacts of reference point as well as its change on individual value with two risk selection experiments, which are at the same wealth level but have different reference points. Experiments find that reference point has significant influences on value function and decision weight at the same wealth level. Moreover, via the value function diagram, we find that the value of a certain wealth level rising from a relatively low reference point is higher than the value of the same wealth level declining from a relatively high reference point which initially is raised from the lower reference one. Intuitively, it also explains that the changes of the reference point will lead to a decline in the overall value of decision-maker.