Optimal Stopping with Behaviorally Biased Agents: The Role of Loss Aversion and Changing Reference Points

  title={Optimal Stopping with Behaviorally Biased Agents: The Role of Loss Aversion and Changing Reference Points},
  author={Jon M. Kleinberg and Robert D. Kleinberg and Sigal Oren},
  journal={Proceedings of the 22nd ACM Conference on Economics and Computation},
One of the central human biases studied in behavioral economics is reference dependence - people's tendency to evaluate an outcome not in absolute terms but instead relative to a reference point that reflects some notion of the status quo [4]. Reference dependence interacts closely with a related behavioral bias, loss aversion, in which people weigh losses more strongly than gains of comparable absolute values. Taken together, these two effects produce a fundamental behavioral regularity in… 

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