March 3, 2026

Attitudes toward Success and Failure

Key Points

Attitudes toward success and failure reveal distinct risk preferences across a reference point, enhancing decision-making understanding.
One key feature shows local reversals in risk attitudes, indicating how decisions change when goals are approached or missed.
Observational analysis employs a standard expected utility framework to connect attitudes with preferences over lotteries.
Findings may enable new forms of comparative statics exercises, improving insights into reference-dependent preferences.

Abstract

Individuals often attach a special meaning to attaining a certain goal, and getting past a threshold marks the difference between success and failure. In this paper, we take a standard expected utility (EU) setting with an exogenous reference point that separates success from failure and define attitudes toward success and failure as features of preferences over lotteries. The distinctive feature of our definitions is that they concern a local reversal of the decision-maker’s risk attitude across the reference point. Our findings provide a unified view of several well-known models of reference-dependent preferences and suggest new forms of comparative statics exercises. (JEL D11, D44, D81, D91)

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