Framing Contracts - Why Loss Framing Increases Effort
Richard R. W. Brooks
Yale University - Law School
UCLA School of Law
New York University School of Law
January 23, 2012
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
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.
Number of Pages in PDF File: 28
Keywords: Contracts, Loss Framing, Experimental Law and Economics
JEL Classification: K12, C91, L14, J41
Date posted: January 25, 2012 ; Last revised: April 1, 2013