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 hap-
pier” 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 hap-
pen 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.