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A Structural Analysis of Disappointment Aversion in a Real Effort Competition

36 Pages Posted: 31 Mar 2010 Last revised: 26 Jul 2011

David Gill

Purdue University, Department of Economics

Victoria L. Prowse

Purdue University - Department of Economics; IZA Institute of Labor Economics; German Institute for Economic Research (DIW Berlin)

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Date Written: September 1, 2010

Abstract

We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. We predict that a disappointment averse agent, who is loss averse around her endogenous choice-acclimating expectations-based reference point, responds negatively to her rival's effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population.

Keywords: Disappointment aversion, Loss aversion, Reference-dependent preferences, Reference point adjustment, Expectations, Tournament, Real effort experiment, Slider task

JEL Classification: C91, D03

Suggested Citation

Gill, David and Prowse, Victoria L., A Structural Analysis of Disappointment Aversion in a Real Effort Competition (September 1, 2010). American Economic Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1578847

David Gill (Contact Author)

Purdue University, Department of Economics ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

Victoria L. Prowse

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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