Reference Points in Economic Decision Making

Student: Adila Akhmedova

Educational Programme: Economics and Economic Policy (Master)

Final Grade: 8

Year of Graduation: 2024

The study investigates the concept of reference points in economic decision-making, with a focus on inaction inertia—the reluctance to act after missing a favourable opportunity. The study uses the model of reference-dependent preferences by Kőszegi and Rabin (2006) to explain how expectations about future prices and past experiences influence consumer behaviour and decision-making. The empirical component of the research involved an experiment. Results show that previous lower prices set a reference point that significantly decreases the likelihood of engaging in purchases at higher current prices. The findings highlight the importance of managing consumer expectations.

Full text (added May 15, 2024)

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