Framing Contracts: Why Loss Framing Increases Effort
AbstractRecent 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.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 168 (2012)
Issue (Month): 1 (March)
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Web page: http://www.mohr.de/jite
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
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- Katharina Hilken & Stephanie Rosenkranz & Kris De Jaegher & Marc Jegers, 2013. "Reference Points, Performance and Ability: A Real Effort Experiment on Framed Incentive Schemes," Working Papers, Utrecht School of Economics 13-15, Utrecht School of Economics.
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