Reference dependence

Reference dependence is a concept from behavioral economics where people evaluate outcomes based on a specific point of comparison or "reference" rather than the final value alone. For example, a person might feel disappointed if their salary doesn't meet their expectation, even if it increased compared to before. Similarly, winning a small prize might feel less exciting if it’s below what they expected, while the same prize could feel valuable if it exceeded their reference point. Essentially, our feelings about gains or losses are shaped by how they compare to our expectations or recent experiences.