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 18, 2014


Abstract:     
In this paper, we directly test a central prediction of loss aversion in contracting: in order to avoid losses, people will exert more effort under a contract in a loss frame than a gain frame. Anticipating this, they will prefer the gain-framed contract if given the choice. In a series of laboratory experiments, we find that individuals do indeed work harder when incentives are framed as a loss. However, we do not find evidence that they prefer the gain frame. In fact, our results suggest that individuals have a directional preference for contracts framed as a loss. These findings have implications for the theory of reference-dependent preferences and optimal incentive design.

Number of Pages in PDF File: 25

Keywords: loss aversion, incentives, contracts, framing

JEL Classification: C91, J33, M54

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Date posted: March 20, 2014 ; Last revised: June 3, 2014

Suggested Citation

Imas, Alex and Sadoff, Sally and Samek, Anya Savikhin, Do People Anticipate Loss Aversion? (March 18, 2014). 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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