Köszegi & Rabin 2006 (QJE) — reference-dependent preferences; the reference point is endogenous

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.

Source: Köszegi, B., & Rabin, M. (2006). "A Model of Reference-Dependent Preferences." Quarterly Journal of Economics 121(4): 1133–1165.

Confidence: Verified.

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.

Operationalized as: [[rule-payment-terms-aligned-with-gc-draw-cycle]].