Academic Journals Database
Disseminating quality controlled scientific knowledge

Testing reference dependence, loss aversion and diminishing sensitivity in Spanish tourism

ADD TO MY LIST
 
Author(s): Juan Luis Nicolau

Journal: Investigaciones Económicas
ISSN 0210-1521

Volume: XXXII;
Issue: 2;
Start page: 231;
Date: 2008;
Original page

Keywords: Prospect theory | tourism prices.

ABSTRACT
Based on Tversky and Kahneman is Prospect Theory, we test the existence of reference dependence, loss aversion and diminishing sensitivity in Spanish tourism. To do this, we incorporate the reference-dependent model into a Multinomial Logit Model with Random Parameters -which controls for heterogeneity- and apply it to a sample of vacation choices made by Spaniards. We find that the difference between reference price and actual price is considered to make decisions, confirming that reference dependence exists; that people react more strongly to price increases than to price decreases relative to their reference price, which represents evidence in favor of the loss aversion phenomenon; and that there is diminishing sensitivity for losses only, showing convexity for these negative values.
Why do you need a reservation system?      Save time & money - Smart Internet Solutions