Reference-dependent preference models assume that agents derive utility from deviations of consumption from benchmark levels, rather than from consumption levels. These references can be either backward-looking (as explicit in the Habit literature) or forward-looking (as implicitly suggested by...

Reference–dependent preference models assume that agents derive utility from deviations of consumption from benchmark levels, rather than from consumption levels. These references can be either backward-looking (as explicit in the Habit literature) or forward-looking (as implicitly suggested...

This paper develops a consumption-based asset pricing model in which attitudes towards risk are contingent upon the state of the world. For low (high) level of consumption relative to a subjective metric, counter-cyclical (pro-cyclical) risk aversion implies that consumption shocks generate...