Price expectations and reference-dependent preferences

We test Kőszegi and Rabin's (2006, 2007) theory of reference-dependent preferences in the context of sellers’ price expectations. In a well-powered laboratory experiment, participants are endowed with a good and report their willingness to accept to sell it. We manipulate the price in an exogenous forced sale scenario, which is predicted to produce a “comparison effect”, moving WTA in the opposite direction to the forced sale price. We find a small (Cohen's $d=0.18$) and marginally significant effect in the hypothesised direction for incentivised reservation prices. More unexpectedly, we find a larger ($d=0.32$) and highly significant effect in the same direction on unincentivised estimates of the value of the good. Our results cannot be explained by anchoring or signalling effects of the forced sale price, but also highlight some challenges in identifying the effects of expectations manipulations using valuation designs.