Reference Points and Effort Provision
Institute for the Study of Labor (IZA); University of Nottingham
Institute for the Study of Labor (IZA); University of Bonn - Economic Science Area; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
University of Lausanne; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Institute for the Study of Labor (IZA); Swarthmore College
CEPR Discussion Paper No. DP7221
A key open question for theories of reference-dependent references is what determines the reference point. One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low.
Number of Pages in PDF File: 41
Keywords: Disappointment, Expectations, Experiment, Loss Aversion, Reference Points, Risk Aversion
JEL Classification: C91, D01, D84, J22working papers series
Date posted: April 7, 2009
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