Working Paper: CEPR ID: DP7221
Authors: Johannes Abeler; Armin Falk; Lorenz Goette; David Huffman
Abstract: A key open question for theories of reference-dependent references 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.
Keywords: Disappointment; Expectations; Experiment; Loss Aversion; Reference Points; Risk Aversion
JEL Codes: C91; D01; D84; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Expectations (fixed payment) (D84) | Effort provision (Y20) |
| High fixed payment (7 euros) (E64) | Effort provision (Y20) |
| Low fixed payment (3 euros) (G59) | Effort provision (Y20) |
| Accumulated earnings equal fixed payment (J33) | Probability of stopping work (J26) |
| Salience of fixed payment constant while changing reference point (D11) | Stopping behavior shifts (C92) |