Goals as Reference Points: Empirical Evidence from a Virtual Reward System

Heath et al. (1999) propose a prospect theory model for goal behavior which offers insights on how goals affect individual and group performance. Their analytical model is based on the assumption that goals inherit the main properties of the prospect theory value function, i.e., reference point dependence, loss aversion, and diminishing sensitivity. Evidence from laboratory experiments as well as first evidence from the field support this modeling choice. In this paper, we complement this work by investigating whether the main properties of the prospect theory value function transfer to goal behavior in the field. In particular, we analyze how individual performance is affected by the presence of goals. For our research, we take user activity data from a popular German Question & Answer community and analyze how users adjust their contribution behavior in the days surrounding goal achievement, where goals are represented by badges. We find that users gradually increase their performance in the days prior to earning a badge, with performance peaking on the day of the promotion. In subsequent days, user performance gradually diminishes again, with the decline being strongest on the day immediately following the badge achievement. Overall, user performance is higher in the days preceding badge achievement, compared to subsequent days. These findings reflect the characteristic S-shape of the prospect theory value function which is convex below the reference point and concave above it. Our results thus support the transferability of the main properties of the prospect theory value function to goal behavior in the field and suggest a distinct shape of the value function around goals.