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Framing Contracts: Why Loss Framing Increases Effort

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  • Brooks, Richard R. W.
  • Stremitzer, Alexander
  • Tontrup, Stephan

Abstract

Recent evidence from the field (Hossain and List, 2009) suggests that contracts framed in terms of a loss (a deduction is taken for failing to meet a threshold) lead to greater effort than contracts framed in terms of a gain (a bonus is given for meeting a threshold). We investigate two explanations for this framing effect in a laboratory setting. First, we find that the loss frame communicates the expectation that achieving the bonus is the default and that our subjects comply with this expectation. Second, we find evidence for an endowment effect, even though the bonus is just a monetary payment that subjects do not even have in their possession.

Suggested Citation

  • Brooks, Richard R. W. & Stremitzer, Alexander & Tontrup, Stephan, 2012. "Framing Contracts: Why Loss Framing Increases Effort," EconStor Preprints 335553, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:335553
    DOI: 10.2139/ssrn.1990226
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    Keywords

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    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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