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A Structural Analysis of Disappointment Aversion in a Real Effort Competition

  • Victoria Prowse
  • David Gill

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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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper448.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 448.

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Date of creation: 01 Sep 2009
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Handle: RePEc:oxf:wpaper:448
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  8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  9. Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
  10. Eriksson, Tor & Poulsen, Anders & Villeval, Marie Claire, 2008. "Feedback and Incentives: Experimental Evidence," IZA Discussion Papers 3440, Institute for the Study of Labor (IZA).
  11. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
  12. Pedro Dal B�, 2005. "Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games," American Economic Review, American Economic Association, vol. 95(5), pages 1591-1604, December.
  13. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99.
  14. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  15. van Dijk, W.W. & van der Pligt, J. & Zeelenberg, M., 1999. "Effort invested in vain : The impact of effort on the intensity of disappointment and regret," Other publications TiSEM 4746cce1-ce4d-4fea-b3c4-0, Tilburg University, School of Economics and Management.
  16. Philippe Delquié & Alessandra Cillo, 2006. "Expectations, Disappointment, and Rank-Dependent Probability Weighting," Theory and Decision, Springer, vol. 60(2), pages 193-206, 05.
  17. Keith M. Marzilli Ericson & Andreas Fuster, 2011. "Expectations as Endowments: Evidence on Reference-Dependent Preferences from Exchange and Valuation Experiments," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1879-1907.
  18. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  19. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  20. Falk, Armin & Fehr, Ernst, 2003. "Why labour market experiments?," Labour Economics, Elsevier, vol. 10(4), pages 399-406, August.
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