Outcomes are evaluated relative to a reference point (usually the status quo) rather than in absolute terms, making framing crucial.
People don't evaluate outcomes based on final wealth states but relative to a reference point. Gaining $100 feels different depending on whether you started with $1,000 or $10,000. This explains the endowment effect (people demand more to give up something they own than they'd pay to acquire it) and why 'no change' is sticky—any change involves a loss from the reference point. The reference point is often the status quo but can be shifted by expectations, social comparisons, or how choices are framed.
A 10% salary increase feels like a gain if your reference point is your current salary, but feels like a loss if your reference point is the 15% raise you expected or that your colleague received.
Reference points are objective and fixed—they're often arbitrary and can be manipulated through framing.
Why does reference dependence make the status quo 'sticky'?
True or False: Reference points are objective and fixed based on your actual current situation.
Logically equivalent choices produce different decisions when framed differently (as gains vs. losses, or with different reference points).
PrincipleContinuing an endeavor because of previously invested resources (time, money, effort) that cannot be recovered, even when continuing is irrational.
PrincipleFast, automatic, unconscious cognitive processing that operates through pattern recognition and associative memory without deliberate effort.
Mental ModelSlow, effortful, conscious cognitive processing required for complex calculations, unfamiliar tasks, and deliberate reasoning.
Mental ModelThe tendency to rely too heavily on the first piece of information encountered (the anchor) when making decisions, even when it's arbitrary or irrelevant.
PrincipleJudging the frequency or probability of events by how easily examples come to mind, leading to overestimation of vivid, recent, or emotional events.
PrincipleJudging probability by similarity to stereotypes or prototypes, while ignoring base rates and sample size.
PrincipleWhen faced with a difficult question, System 1 automatically substitutes an easier question without conscious awareness of the switch.
FrameworkLasting behavior change comes from shifting your identity (who you are) rather than focusing on outcomes (what you achieve).
from “Atomic Habits”
A specific plan that states when, where, and how you will execute a behavior: 'I will [behavior] at [time] in [location].'
from “Atomic Habits”
Pair an action you need to do with an action you want to do to make habits more attractive.
from “Atomic Habits”
Behavior change operates at three levels: outcomes (what you get), processes (what you do), and identity (what you believe).
from “Atomic Habits”
Identity changes through accumulated evidence: each habit execution is a vote for the type of person you want to become.
from “Atomic Habits”
Outcomes are evaluated relative to a reference point (usually the status quo) rather than in absolute terms, making framing crucial.
A 10% salary increase feels like a gain if your reference point is your current salary, but feels like a loss if your reference point is the 15% raise you expected or that your colleague received.
Reference points are objective and fixed—they're often arbitrary and can be manipulated through framing.
Reference Dependence is explored in depth in "Thinking, Fast and Slow" by Daniel Kahneman. Distilo provides a deep AI-powered analysis with key insights, audio narration, and practical frameworks.