Investment in education under disappointment aversion

Dan Anderberg and Claudia Cerrone

No 2016_16, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: This paper develops a model of risky investment in education under disappointment aversion, modelled as loss aversion around one's endogenous expectation. The model shows that disappointment aversion reduces the optimal investment in education for lower ability people and increases it for higher ability people, thereby magnifying the investment gap between them generated by the riskiness of education. Policies aimed at influencing students' expectations can reduce early dropout.

Keywords: education; risk; disappointment aversion; endogeneous reference points (search for similar items in EconPapers)
JEL-codes: D03 D81 I21 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-edu and nep-upt
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Related works:
Journal Article: Investment in education under disappointment aversion (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2016_16

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