Three essays on loss aversion and reference-dependent preferences

Abstract

This thesis studies loss aversion and reference-dependent preferences. The second chapter and the fourth chapter analyze the price strategy for the monopolist with a loss-averse consumer following the reference-dependent model of Kőszegi and Rabin (2006). The second chapter takes into account the happiness of not paying at the highest price and the disappointment of not paying at the lowest price and finds that this happiness has a positive effect on the monopolist's revenue and this disappointment has a negative effect on the monopolist's revenue. The fourth chapter proposes a two-period pricing model and shows that the monopolist could make use of two-price strategy to earn a revenue that is greater than the product value. The revenue of the two-period model is higher than one-period model when the weight of gain-loss utility is big enough. The third chapter studies the winner's regret with bidders when they have reference-dependent preferences in the sealed-bid first-price auction, second-price auction and all-pay auction and shows that the optimal bid is smaller with regret than without regret for loss-averse bidders, is greater for gain-seeking bidders and is the same for risk-neutral bidders.