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Reference Points and Effort Provision

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  • Abeler, Johannes

    ()
    (University of Oxford)

  • Falk, Armin

    ()
    (University of Bonn)

  • Götte, Lorenz

    ()
    (University of Lausanne)

  • Huffman, David B.

    ()
    (University of Oxford)

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 than if expectations are low.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3939.

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Length: 40 pages
Date of creation: Jan 2009
Date of revision:
Publication status: published in: American Economic Review, 2011, 101 (2), 470-492
Handle: RePEc:iza:izadps:dp3939

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Keywords: reference points; expectations; loss aversion; risk aversion; disappointment; experiment;

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