Reference Points for Loss Aversion

More and more evidence shows that people are loss averse: they compare what they have to a reference point and weight unfavourable comparisons ("losses") much more than favourable comparisons ("gains"). Loss aversion is used to explain all kinds of behaviour, including consumption, labour supply, investment and saving. However, it is still unclear what that reference point is. Johannes Abeler (together with Armin Falk, Lorenz Götte and David Huffman) has shown in a series of laboratory experiments that recent expectations can serve as a reference point, supporting new models of expectation-based, reference-dependent preferences. These models help to close some of the degrees of freedom of earlier models and are now widely applied in economics.

While visiting CESifo, Mr Abeler will explore possible future collaborations with Ifo staff in his field. In his research, he applies insights from behavioural and experimental economics to questions in labour and public economics. In addition to his research on reference points, he has studied the economic effects of honesty, fairness, complexity and fungibility. His articles have appeared in the American Economic Review, the Journal of the European Economic Association, Journal of Public Economics and American Economic Journal: Economic Policy.

Johannes Abeler is an Associate Professor at the Department of Economics of the University of Oxford and Tutorial Fellow at St Anne's College. After studies of Electrical Engineering and Industrial Engineering, he completed a PhD in Economics at the University of Bonn and then joined the University of Nottingham. He is an IZA Research Fellow and a CESifo Research Network Affiliate. He received the CESifo Distinguished Affiliate Award for Behavioural Economics in 2011.