Loss Aversion and Reference-Dependent Preferences in Multi-Attribute Negotiations

Author: Gimpel, Henner

Source: Group Decision and Negotiation, Volume 16, Number 4, July 2007 , pp. 303-319(17)

Publisher: Springer

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Abstract:

Negotiation analysis and game theoretic bargaining models usually assume parties to have exogenous preferences from the beginning of a negotiation on and independent of the history of offers made. On the contrary, this paper argues that preferences might be based on attribute-wise reference points changing during the negotiation process. Aversion against losses relative to the reference point determines negotiators' decisions in the negotiation and after its termination. The emergence and implications of reference points in a negotiation context are motivated, exemplified, and modeled formally. Furthermore, data from an internet experiment on endogenous preferences in bilateral multi-attribute negotiations is presented. The data supports the behavioral model.

Keywords: behavioral biases; experimental economics; loss aversion; negotiation analysis; prospect theory; quasi-endowment effect

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s10726-006-9051-9

Affiliations: 1: Email: gimpel@iism.uni-karlsruhe.de

Publication date: 2007-07-01