#2379. Modelling reference dependence for repeated choices: A horse race between models of normalisation

October 2026publication date
Proposal available till 30-05-2025
4 total number of authors per manuscript3000 $

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Journal’s subject area:
Sociology and Political Science;
Economics and Econometrics;
Applied Psychology;
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Abstract:
The article analyzes the reference dependence using the value normalization approach developed in neuroscience. The study used experimental data and jumped between different normalized models, including the widely used division and range normalization. The results show that the parsimonious logit model with maximum difference normalization has both the best fit and strong quasi-out-of-sample predictive power. In this logit model without structural parameters, the agent makes a choice based on the difference in payments in the previous period, normalized to the maximum difference in payments in the two previous periods.
Keywords:
Discrete choice; Range-frequency model; Scale heterogeneity; Value normalisation

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