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Loss Aversion and the Quantity-Quality Tradeoff

Jared Rubin (), Anya Samek and Roman Sheremeta ()
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Anya Samek: Dornsife College of Letters, Arts and Sciences, University of Southern California

Working Papers from Chapman University, Economic Science Institute

Abstract: Firms face an optimization problem that requires a maximal quantity output given a quality constraint. But how do firms incentivize quantity and quality to meet these dual goals, and what role do behavioral factors, such as loss aversion, play in the tradeoffs workers face? We address these questions with a theoretical model and an experiment in which participants are paid for both quantity and quality of a real effort task. Consistent with basic economic theory, higher quality incentives encourage participants to shift their attention from quantity to quality. However, we also find that loss averse participantsshift their attention from quality to quantity to a greater degree when quality is weakly incentivized. These results can inform managers of appropriate ways to structure contracts, and suggest benefits to personalizing contracts based on individual behavioral characteristics.

Keywords: quantity; quality; experiment; incentives; real effort; loss aversion (search for similar items in EconPapers)
JEL-codes: D24 J24 J31 J41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-hrm, nep-lma and nep-upt
Date: 2017
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https://www.chapman.edu/research/institutes-and-ce ... ity-quality-2017.pdf

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Journal Article: Loss aversion and the quantity–quality tradeoff (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:17-20

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