Reference points and negative reciprocity in simple sequential games

Abstract

We investigate experimentally whether preferences over an outcome depend on what other possible outcomes of the situation under consideration are, i.e., whether choices are >menu dependent.> In simple sequential games we analyze whether reactions to a certain benchmark outcome are influenced by changes in the payoffs of another outcome, not attainable at that time, called the >reference point.> Our data provide evidence that is favorable to the notion of menu dependence. Alterations of the reference point can lead to quantitatively significant changes in behavior at the benchmark outcome. The behavior we observe can be interpreted in terms of negative reciprocity. Journal of Economic Literature Classification Numbers: C91, C92, C72. © 2001 Academic Press.