Reference Dependence

In reference dependence, we don’t evaluate final states in isolation, but changes relative to a reference point. In this context, when gains occur we think of the recursively, i.e. the output of a previous step becomes the input of the next one, but when losses are involved, we tend to stick to the initial values and are therefore non-recursive.

NoteExample

Retail pricing

The simplest example is that of retailers keeping the initial price of a product alongside the discounted one; a €100 price feels less expensive when compared to an initial €150 anchor.

“Look at how much we’re saving!”

Also relates to: Loss Aversion · Anchoring and Adjustment · Frame Dependence · Diminishing Sensitivity · Hedonic Editing