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Reference Points and Effort Provision

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  • Abeler, Johannes
  • Falk, Armin
  • Götte, Lorenz
  • Huffman, David

Abstract

A key open question for theories of reference-dependent preferences is what determines the reference point. One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low.

Suggested Citation

  • Abeler, Johannes & Falk, Armin & Götte, Lorenz & Huffman, David, 2011. "Reference Points and Effort Provision," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 358, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:358
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    More about this item

    Keywords

    Reference Points; Expectations; Loss Aversion; Disappointment; Experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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