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  4. February 2024
  5. A Random Reference Model

A Random Reference Model

  • Özgür Kibris
  • Yusufcan Masatlioglu
  • Elchin Suleymanov
American Economic Journal: Microeconomics
vol. 16, no. 1, February 2024
(pp. 155-209)
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Abstract

We provide two nested models of random reference-dependent choice in which the reference point is endogenously determined by random processes. Random choice behavior is due to random reference points, even though, from the decision-maker's viewpoint, choices are deterministic. Through a revealed preference exercise, we establish when and how one can identify the reference-dependent preferences and the random reference rule from observed choice data. We also present behavioral postulates that characterize the empirical content of our models. Lastly, we investigate an application of our model to Bertrand competition with differentiated products.

Citation

Kibris, Özgür, Yusufcan Masatlioglu, and Elchin Suleymanov. 2024. "A Random Reference Model." American Economic Journal: Microeconomics, 16 (1): 155-209. DOI: 10.1257/mic.20220089

Additional Materials

JEL Classification

  • D11 Consumer Economics: Theory
  • D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
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