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Reference Points and Effort Provision

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Author Info
Johannes Abeler () (University of Nottingham)
Armin Falk () (University of Bonn)
Lorenz Goette () (University of Geneva)
David Huffman () (Swarthmore College)

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Abstract

A key open question for theories of reference-dependent preferences is what determines the reference point. One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based reference-dependent preferences: if expectations are high, subjects work longer and earn more money that if expectations are low.

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Publisher Info
Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2009-02.

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Date of creation: Jan 2009
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Handle: RePEc:cdx:dpaper:2009-02

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Related research
Keywords: Reference Points; Expectations; Loss Aversion; Risk Aversion; Disappointment; Experiment;

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Jonathan Shalev, 2000. "Loss aversion equilibrium," International Journal of Game Theory, Springer, vol. 29(2), pages 269-287. [Downloadable!] (restricted)
    Other versions:
  2. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December. [Downloadable!] (restricted)
  3. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October. [Downloadable!] (restricted)
  4. Loomes, Graham & Sugden, Robert, 1987. "Testing for Regret and Disappointment in Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 97(388a), pages 118-29, Supplemen. [Downloadable!] (restricted)
  5. Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1133-1165, November. [Downloadable!] (restricted)
  6. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," NBER Working Papers 8143, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  8. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-86, May. [Downloadable!] (restricted)
  9. Botond Kőszegi & Matthew Rabin, 2007. "Reference-Dependent Risk Attitudes," American Economic Review, American Economic Association, vol. 97(4), pages 1047-1073, September. [Downloadable!]
  10. Henry S. Farber, 2005. "Is Tomorrow Another Day? The Labor Supply of New York City Cabdrivers," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 46-82, February.
  11. Loomes, Graham & Sugden, Robert, 1986. "Disappointment and Dynamic Consistency in Choice under Uncertainty," Review of Economic Studies, Blackwell Publishing, vol. 53(2), pages 271-82, April. [Downloadable!] (restricted)
  12. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October. [Downloadable!] (restricted)
  13. Henry S. Farber, 2008. "Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers," American Economic Review, American Economic Association, vol. 98(3), pages 1069-82, June. [Downloadable!]
  14. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Gill & Victoria Prowse, 2009. "A Novel Computerized Real Effort Task Based on Sliders," Economics Series Working Papers 435, University of Oxford, Department of Economics. [Downloadable!]
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