Expectations as Endowments: Evidence on Reference-Dependent Preferences from Exchange and Valuation Experiments

Evidence on loss aversion and the endowment effect suggests that people evaluate outcomes with respect to a reference point. Yet little is known about what determines reference points. We conduct two experiments that show that reference points are determined by expectations. In the first experiment, we endow subjects with an item and randomize the probability they will be allowed to trade it for an alternative. Subjects that are less likely to...