IDEAS home Printed from https://ideas.repec.org/p/mpg/wpaper/2016_16.html
   My bibliography  Save this paper

Investment in education under disappointment aversion

Author

Listed:
  • Dan Anderberg

    () (Department of Economics, Royal Holloway University of London)

  • Claudia Cerrone

    () (Max Planck Institute for Research on Collective Goods)

Abstract

This paper develops a model of risky investment in education under disappointment aversion, modelled as loss aversion around one's endogenous expectation. The model shows that disappointment aversion reduces the optimal investment in education for lower ability people and increases it for higher ability people, thereby magnifying the investment gap between them generated by the riskiness of education. Policies aimed at influencing students' expectations can reduce early dropout.

Suggested Citation

  • Dan Anderberg & Claudia Cerrone, 2016. "Investment in education under disappointment aversion," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_16, Max Planck Institute for Research on Collective Goods.
  • Handle: RePEc:mpg:wpaper:2016_16
    as

    Download full text from publisher

    File URL: http://www.coll.mpg.de/pdf_dat/2016_16online.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Björn Bartling & Leif Brandes & Daniel Schunk, 2015. "Expectations as Reference Points: Field Evidence from Professional Soccer," Management Science, INFORMS, vol. 61(11), pages 2646-2661, November.
    2. Goux, Dominique & Gurgand, Marc & Maurin, Eric, 2014. "Adjusting Your Dreams? The Effect of School and Peers on Dropout Behaviour," IZA Discussion Papers 7948, Institute for the Study of Labor (IZA).
    3. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1133-1165.
    4. Dan Anderberg & Claudia Cerrone, 2014. "Education, Disappointment and Optimal Policy," CESifo Working Paper Series 5141, CESifo Group Munich.
    5. Adam M. Lavecchia & Heidi Liu & Philip Oreopoulos, 2014. "Behavioral Economics of Education: Progress and Possibilities," NBER Working Papers 20609, National Bureau of Economic Research, Inc.
    6. Guilhem Lecouteux & Léonard Moulin, 2015. "To gain or not to lose? Tuition fees for loss averse students," Economics Bulletin, AccessEcon, vol. 35(2), pages 1005-1019.
    7. Brian C. Cadena & Benjamin J. Keys, 2015. "Human Capital and the Lifetime Costs of Impatience," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 126-153, August.
    8. Robert Jensen, 2010. "The (Perceived) Returns to Education and the Demand for Schooling," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 515-548.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    education; risk; disappointment aversion; endogeneous reference points;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mpg:wpaper:2016_16. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marc Martin). General contact details of provider: http://edirc.repec.org/data/mppggde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.