Seminar

Attitudes towards success and failure

Antonio Penta ( Toulouse School of Economics)

October 19, 2021, 11:00–12:30

Toulouse

Economic Theory Seminar

Abstract

We consider a standard expected utility setting, with an exogenous reference point that separates outcomes the decision maker regards as failures from successes. We introduce various attitudes towards success and failure, and characterize their implications for the shape of the Bernoulli utility functions. Our ndings provide a unied view of several known models of reference-dependent preferences in economics, nance and psychology. These include both novel representations, as well as highly in uential models of loss-aversion, aspirations, and others, for which a standard preference-based characterization was lacking. We also introduce orderings over the primitive space of preferences to dene dierent intensities with which each of these attitudes can be displayed,and we characterize them in terms of the Bernoulli representation, with indices analogous to the well-known Arrow-Pratt index for risk-aversion. Our ndings shed new light on seemingly intuitive notions of comparative statics for frequently used notions of reference-dependent preferences. Finally, we argue that our framework may prove useful to incorporate, within a standard economic model, behavioral manifestations of personality traits familiar from the psychology literature (such as grit, tenacity, conscientiousness and neuroticism) that have received increasing attention within the empirical economics literature. (with Larbi Alaoui - UPF and BSE)