Attitudes towards Success and Failure

Alaoui, Larbi; Penta, Antonio

doi:10.1257/mic.20240429

Abstract

Individuals often attach a special meaning to attaining a certain goal, and getting past a threshold marks the difference between success and failure. In this paper we take a standard EU setting with an exogenous reference point that separates success from failure, and define attitudes towards success and failure as features of preferences over lotteries. The distinctive feature of our definitions is that they all concern a local reversal of the decision maker's risk attitude across the reference point. Our findings provide a unified view of several well-known models of reference-dependent preferences, and suggest new forms of comparative statics exercises.

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Microeconomics