| Reference points are omnipresent in both psychological and economic decisions. In fact, the initial or most recent reference points tend to dominate decisions. People also evaluate outcomes in relation to their focal reference points. Reference points can take a number of formats, be affected by external influences, and are more powerful to the extent they are not well anticipated or understood. Reference points are constructs that are both personal and context-specific. While aspirations and the current status quo are sometimes used as sources of reference, expectations represent people's beliefs about a range of possible outcomes in the face of uncertainty.;This dissertation follows a multidisciplinary approach, building on findings from economics and psychology regarding the role of expectations as a formative factor of reference points. Findings from the three chapters included on this dissertation have applications in household finance, public policy, and organizational management. The first chapter reviews reference points under uncertainty in a field setting--people filing their income taxes estimating how much of a refund they will receive. The data shows that having any reference point, even if biased, facilitates decisions to save the refund proceeds. The second chapter uses an experimental design to test decisions under uncertainty. In a laboratory setting, this study shows that an external reference point provided to participants leads to riskier investment choices relative to an internally developed reference point. The last chapter reviews how measured and expected financial knowledge have different associations with financial satisfaction using national survey data. This analysis shows that subjective levels of financial knowledge have a positive association with financial satisfaction, while objective knowledge levels are negatively correlated with financial satisfaction. The overall evidence from the three studies is that expectations are a critical factor in choices under uncertainty and strongly influence how people evaluate their gains and losses. |
