A theory of adaptive reference points in decision-making and negotiation

Careful examination of the evidence relating to decision framing revealed a regularity not previously noted. A theory of outcome framing consistent with this finding is developed. An implication of the theory is that the formulation effect will be eroded under the types of experience available in competitive bargaining or in the marketplace. Two experiments were conducted to test hypotheses derived from the theory. Experiment 1 examined risky choice. Experiment 2 examined similar questions in the more complex context of two person bargaining. The results are very consistent. Decision makers or bargainers who are given a negative formulation have higher aspirations than those given a positive formulation. Subsequent experience leads to adaptation of aspirations and the partial erosion of the formulation effect. However adaptation is asymmetric. Lower aspirations rise readily with experience but higher aspirations do not decline with experience. The implications of these findings for the choice and bargaining literatures are discussed.