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Reference Dependence and Monetary Incentives: Evidence from Major League Baseball

Author

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  • Reio Tanji

    (Graduate School of Economics, Osaka University)

Abstract

This paper discusses what determines the reference point in decision making,using an empirical dataset of performance stats in professional baseball.Previous literature has argued that some round-numbers may work as such points,and as a result,bunching occurs around these numbers in the distribution of the target outcomes.On the other hand,in the setting of workplace, the outcomes are observable both for the worker(players) and the evaluator(managers). This paper shows that this bunching do NOT occur from the structure of the contracts,or how the managers evaluate the players.Bunching seems to stem from the reference-point dependence of the workers themselves,and so to avoid this economically inefficient behavior,we have to design contracts that incentivize players to do so.

Suggested Citation

  • Reio Tanji, 2021. "Reference Dependence and Monetary Incentives: Evidence from Major League Baseball," Discussion Papers in Economics and Business 20-23, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2023
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    File URL: http://www2.econ.osaka-u.ac.jp/econ_society/dp/2023.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    referencedependence; round-numbereffect; bunching; monetaryincentive; sports;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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