Multiple Reference Points and Economic Decisions: Evidence from Figure Skating Data

Abstract

This paper studies the effect of multiple reference points on decisions made by professional athletes. Unique design features present in elite-level figure skating competitions generate two salient reference points: one reflecting rational expectations about the likelihood of success and the other reflecting information on the performance of previous competitors. An analysis of effort decisions and competition outcomes shows that both reference points affect skaters’ decisions; the effect diminishes with experience. The results support the idea that the elimination of market anomalies takes time even for highly trained professionals and the time required varies depending on the specific reference point.