Varying reference-point salience

Alex Krumer, Felix Otto and Tim Pawlowski

Papers from arXiv.org

Abstract: The salience of reference points may theoretically influence the loss aversion mechanism in effort provision. However, we still lack a direct test from real competitive settings that uses exogenous variation to measure the effect of salience. We exploit a natural experiment where highly professional and incentivized individuals perform in real competitive settings with exogenous variation of reference-point salience. While a relevant reference point is salient in some cases, it is obscured in others, which, under reasonable assumptions, may affect individuals' expectations. This enables us to examine the effect of reference-point salience on the loss aversion mechanism in effort provision. Our regression discontinuity analyses reveal that individuals with positive expectations outperform those with negative expectations, but only when the reference point is salient.

Date: 2025-06, Revised 2025-10
New Economics Papers: this item is included in nep-exp
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