Chapter 1. Reference-Dependent Preferences

In this chapter, we present theories and applications of reference-dependent preferences. We provide some historical perspective, but also move quickly to the current research frontier, focusing on developments in reference dependence over the last 20 years. We present a number of worked examples to highlight the broad applicability of reference dependence. While our primary focus is gain–loss utility, we also provide a short treatment of probability weighting and its links to reference dependence.