Framing Contracts - Why Loss Framing Increases Effort

Journal of Institutional and Theoretical Economics (JITE), 2012, 168 (1): 62-82.

UCLA School of Law, Law-Econ Research Paper No. 12-05

Yale Law & Economics Research Paper No. 438

28 Pages Posted: 25 Jan 2012 Last revised: 1 Apr 2013

Richard R. W. Brooks

Yale University - Law School

Alexander Stremitzer

UCLA School of Law

Stephan Tontrup

New York University School of Law

Date Written: January 23, 2012

Abstract

Recent evidence from the field (Hossain and List, 2009) suggests that contracts framed in terms of a loss (a deduction is taken for failing to meet a threshold) lead to greater effort than contracts framed in terms of a gain (a bonus is given for meeting a threshold). We investigate two explanations for this framing effect in a laboratory setting. First, we find that the loss frame communicates the expectation that achieving the bonus is the default and that our subjects comply with this expectation. Second, we find evidence for an endowment effect, even though the bonus is just a monetary payment that subjects do not even have in their possession.

Keywords: Contracts, Loss Framing, Experimental Law and Economics

JEL Classification: K12, C91, L14, J41

Suggested Citation

Brooks, Richard R. W. and Stremitzer, Alexander and Tontrup, Stephan, Framing Contracts - Why Loss Framing Increases Effort (January 23, 2012). Yale Law & Economics Research Paper No. 438; Journal of Institutional and Theoretical Economics (JITE), 2012, 168 (1): 62-82.; UCLA School of Law, Law-Econ Research Paper No. 12-05; Yale Law & Economics Research Paper No. 438. Available at SSRN: https://ssrn.com/abstract=1990226 or http://dx.doi.org/10.2139/ssrn.1990226

Richard R. W. Brooks

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

Alexander Stremitzer

UCLA School of Law ( email )

405 Hilgard Avenue
Box 90095-1476
Los Angeles, CA 90095-1476
United States

HOME PAGE: http://www.law.ucla.edu/faculty/all-faculty-profiles/professors/Pages/Alexander-Stremitzer.aspx

Stephan Tontrup (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
+1. 212. 992. 8815 (Phone)

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