Motivating Innovation: The Effect of Loss Aversion on the Willingness to Persist

46 Pages Posted: 22 Nov 2016 Last revised: 28 Mar 2019

See all articles by Yaroslav Rosokha

Yaroslav Rosokha

Purdue University - Krannert School of Management

Kenneth A. Younge

Ecole Polytechnique Fédérale de Lausanne

Date Written: March 25, 2019

Abstract

We investigate the willingness of individuals to persist at exploration in the face of failure. Prior research suggests that the organization's "tolerance for failure" may motivate greater exploration by the individual. Little is known, however, about how individuals persist at exploration in an uncertain environment when confronted by prolonged periods of negative feedback. To examine this question, we design a two-dimensional maze game and run a series of randomized experiments with human subjects in the game. Our results suggest that individuals explore more when they are reminded of the incremental cost of their actions, a result that extends prior research on loss aversion and prospect theory to environments characterized by model uncertainty. In addition, we run simulations based on a model of reinforcement learning, that extend beyond two-period models of decision-making to account for repeated behavior in longer-running, dynamic contexts.

Keywords: Innovation, Experiments, Loss Aversion, Persistence, Model Uncertainty

Suggested Citation

Rosokha, Yaroslav and Younge, Kenneth A., Motivating Innovation: The Effect of Loss Aversion on the Willingness to Persist (March 25, 2019). Available at SSRN: https://ssrn.com/abstract=2873090 or http://dx.doi.org/10.2139/ssrn.2873090

Yaroslav Rosokha (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Kenneth A. Younge

Ecole Polytechnique Fédérale de Lausanne ( email )

Station 5
1015 Lausanne
Switzerland

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