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A Structural Analysis of Disappointment Aversion in a Real Effort Competition

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  • Gill, David

    ()
    (University of Oxford)

  • Prowse, Victoria L.

    ()
    (Cornell University)

Abstract

We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. Our theory predicts that a disappointment averse agent, who is loss averse around her endogenous expectations-based reference point, responds negatively to her rival's effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4536.

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Length: 36 pages
Date of creation: Oct 2009
Date of revision:
Publication status: published in: American Economic Review, 2012, 102 (1), 469-503
Handle: RePEc:iza:izadps:dp4536

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Keywords: expectations; disappointment aversion; loss aversion; reference-dependent preferences; reference point adjustment; tournament; real effort experiment; slider task;

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