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Description：
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Abstract: This paper examines the reference-dependent intertemporal preferences toward outcome sequence, a stream of outcomes to be received at different time points. A reference-dependent intertemporal utility model is proposed on top of the discounted utility model by incorporating an additional gain-loss utility at each time point. The reference-dependent model would predict when people take future-oriented outcome sequence as a reference point, they appear to be more patient, and when people take present-oriented outcome sequence as a reference point, they appear to be more impatient. We conduct an experiment to test these theoretical predictions. In the experiment, we adopt price list design in which one option is fixed on one side of the list, the other options get better from top to bottom on the other side of the list. Our results confirm that subjects see the fixed option in the list as a reference point. And their choice behaviours are consistent with the predictions of the model. We conduct structural estimation of the choice data for the reference-dependent model. The estimated loss aversion parameter is significantly larger than one, suggesting that loss looms larger than gain in the intertemporal setting. We further discuss the implication of observed reference-dependent effect of price list design on recent debates regarding the elicitation of time preference.
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