{"id":1089,"slug":"koszegi-rabin-2006-reference-dependent-preferences","title":"Köszegi & Rabin 2006 (QJE) — reference-dependent preferences; the reference point is endogenous","kind":"reference","scope":"business","status":"current","audiences":["kevin","candid-team"],"topics":["psychology-aversion","behavioral-economics"],"reference_body":"**Claim:** Köszegi and Rabin formalize the model of reference-dependent preferences. Their key contribution: **the reference point itself is endogenous** — it moves with experience, expectations, and framing — rather than being fixed at the status quo as Kahneman-Tversky 1979 initially assumed. Outcomes are evaluated as gains or losses relative to this moving reference point, not relative to final wealth.\n\n**Source:** Köszegi, B., & Rabin, M. (2006). \"A Model of Reference-Dependent Preferences.\" *Quarterly Journal of Economics* 121(4): 1133–1165.\n\n**Confidence:** Verified.\n\n**For Candid — the GC operative reference point:** For a GC the operative reference point is rarely annual revenue — it is the **current draw cycle's net position after payroll, subs, and material invoices**. A $5K marketing invoice arriving the week before a payroll run with a slow-paying owner is evaluated against the (negative) draw-cycle net position, not against the GC's annual revenue. Same dollar amount, completely different psychological frame. The cash-flow scarcity literature ([[mullainathan-shafir-2013-scarcity-bandwidth-tax]]) explains why this reference-point selection is itself cognitive, not strategic.\n\n**Operationalized as:** [[rule-payment-terms-aligned-with-gc-draw-cycle]].","rationale_body":null,"metadata":null,"links":{"outgoing":[{"slug":"research-brief-risk-aversion-post-failure-may-2026","title":"Research brief: risk aversion, loss aversion, and post-failure decision patterns in GC and trades-business decision-makers (May 2026)","kind":"reference","scope":"business","link_type":"relates-to"},{"slug":"kahneman-tversky-prospect-theory-loss-aversion-2to1","title":"Kahneman & Tversky prospect theory (Econometrica 1979; JRU 1992) — loss aversion ratio ~2:1; fourfold pattern; certainty effect","kind":"reference","scope":"business","link_type":"relates-to"}],"incoming":[{"slug":"rule-payment-terms-aligned-with-gc-draw-cycle","title":"R8 — Payment terms aligned with the GC's draw cycle; progress-based or milestone-tied, not monthly; reduces scarcity-cognitive friction","kind":"rule","scope":"business","link_type":"depends-on"}]},"created_at":"2026-05-25T13:13:30.942Z","updated_at":"2026-05-25T13:13:30.942Z"}