Conclusion. This paper has developed new concepts in three distinct areas: coding gains and losses,
evaluating purchases (transaction utility), and budgetary rules. In this section I will review the evidence presented for each, describe some research in progress, and suggest where additional evidence might be found.
The evidence on the coding of gains and losses comes from two kinds of sources. The “who is happier” questions presented here are a rather direct test, though of a somewhat soft variety. More research along these lines is under way using slightly different questions such as “two events are going to happen to you, would you rather they occurred on the same day or two weeks apart?” The two paradigms do not always lead to the same results, particularly in the domain of losses (Johnson and Thaler 1985). The reasons for the differences are interesting and subtle, and need further investigation. The other source for data on these issues comes from the investigation of choices under uncertainty. Kahneman and Tversky originally formulated their value function based on such choices. In Johnson and Thaler (1985) we investigate how choices under uncertainty are influenced by very recent previous gains or losses. We find that previous gains and losses do influence subsequent choices in ways that complicate any interpretation of the loss function. Some of our data comes from experiments with real money and so are in some sense “harder” than the who is happier data. Kahneman and Tversky are also investigating the multi-attribute extension of prospect theory, and their results suggest caution in extending the single attribute results. The evidence presented on transaction utility was the beer on the beach and hockey ticket questionnaires, and the data on sports pricing. The role of fairness is obviously quite important in determining reference prices. A large-scale telephone survey undertaken by Daniel Kahneman, Jack Knetch and myself is under way and we hope it will provide additional evidence on two important issues in this area. First, what are the determinants of people’s perceptions of fairness? Second, how are market prices influenced by these perceptions? Evidence on the former comes directly from the survery research, while evidence on the latter must come from aggregate economic data. The latter evidence is much more difficult to obtain.
Both the theory and the evidence on the budgetary processes are less well developed than the other topics presented here. The evidence comes from a small sample of households that will not support statistical tests. A more systematic study of household decision making, perhaps utilizing UPC scanner data, should be a high priority. More generally, the theory presented here represents a hybrid of economics and psychology that has heretofore seen little attention. I feel that marketing is the most logical field for this combination to be developed. Aside from those topics just mentioned there are other extensions that seem promising. On the theory side, adding uncertainty and multiple attributes are obviously worth pursuing. Regarding empirical tests, I would personally like to see some field experiments which attempt to implement the ideas suggested here in an actual marketing environment.