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.
Thinking, Fast and Slow
Daniel Kahneman
Losses hurt approximately twice as much as equivalent gains feel good, making people risk-averse for gains and risk-seeking for losses.
People evaluate outcomes relative to a reference point rather than in absolute terms, are loss-averse, show diminishing sensitivity, and overweight small probabilities.
People evaluate outcomes relative to a reference point rather than in absolute terms, are loss-averse, show diminishing sensitivity, and overweight small probabilities.
Losses hurt approximately twice as much as equivalent gains feel good, making people risk-averse for gains and risk-seeking for losses.
Logically equivalent choices produce different decisions when framed differently (as gains vs. losses, or with different reference points).
Why does reference dependence make the status quo 'sticky'?
True or False: Reference points are objective and fixed based on your actual current situation.