Where Do You Want to Go Skiing? The Effect of the Reference Point and Loss Aversion

Abstract

We reported the results from a simple experiment where participants (n = 646) picked their preferred winter holiday from three possible alternatives. To make the experiment as realistic as possible, the alternatives among which participants could choose, were very similar to actual winter holidays offered by an existing travel agency. Our results are consistent with predictions made by prospect theory: alternatives that compare favorably to a reference option are chosen more often than alternatives that compare unfavorably to a reference option. The reference option, experimentally manipulated in this paper, was one of the three alternatives available to participants. Including different reference alternatives into the available choice set changed relative preferences over the remaining alternatives. Our findings provide further evidence that prospect theory can have practical implications for marketers who can influence consumer choice by merely presenting specially composed sets of alternatives.