| Abstract: |
This paper tests for reference dependence, using data from Impressionist and
Contemporary Art auctions. We distinguish reference dependence based on "rule
of thumb" learning from reference dependence based on "rational" learning.
Furthermore, we distinguish pure reference dependence from effects due to loss
aversion. Thus, we use actual market data to test essential characteristics of
Kahneman and Tversky`s Prospect Theory. The main methodological innovations of
this paper are firstly, that reference dependence can be identified separately
from loss aversion. Secondly, we introduce a consistent non-linear estimator
to deal with measurement errors problems involved in testing for loss
aversion. In this dataset, we find strong reference dependence but no loss
aversion. |