Abstract

http://ssrn.com/abstract=2411023
 


 



Do People Anticipate Loss Aversion?


Alex Imas


Carnegie Mellon University - Department of Social and Decision Sciences

Sally Sadoff


University of California, San Diego (UCSD) - Rady School of Management

Anya Savikhin Samek


The University of Chicago; University of Wisconsin - Madison - School of Human Ecology

March 10, 2015


Abstract:     
There is growing interest in the use of loss contracts that offer performance incentives as upfront payments that employees can lose. Standard behavioral models predict a tradeoff in the use of loss contracts: employees will work harder under loss contracts than under gain contracts; but, anticipating loss aversion, they will prefer gain contracts to loss contracts. In a series of experiments, we test these predictions by measuring performance and preferences for payoff-equivalent gain and loss contracts. We find that people indeed work harder under loss than gain contracts, as the theory predicts. Surprisingly, rather than a preference for the gain contract, we find that people actually prefer loss contracts. In exploring mechanisms for our results, we find suggestive evidence that people do anticipate loss aversion but select into loss contracts as a commitment device to improve performance.

Number of Pages in PDF File: 48

Keywords: loss aversion, incentives, contracts, framing

JEL Classification: C91, J33, M54


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Date posted: March 20, 2014 ; Last revised: April 10, 2015

Suggested Citation

Imas, Alex and Sadoff, Sally and Samek, Anya Savikhin, Do People Anticipate Loss Aversion? (March 10, 2015). Available at SSRN: http://ssrn.com/abstract=2411023 or http://dx.doi.org/10.2139/ssrn.2411023

Contact Information

Alex Imas
Carnegie Mellon University - Department of Social and Decision Sciences ( email )
Pittsburgh, PA 15213-3890
United States
Sally Sadoff
University of California, San Diego (UCSD) - Rady School of Management ( email )
9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
Anya Savikhin Samek (Contact Author)
The University of Chicago ( email )
Chicago, IL 60637
United States
University of Wisconsin - Madison - School of Human Ecology ( email )
1225 Observatory Drive
Madison, WI 53706
United States
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