A Structural Analysis of Disappointment Aversion in a Real Effort Competition

David Gill and Victoria Prowse

No 4536, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. Our theory predicts that a disappointment averse agent, who is loss averse around her endogenous expectations-based reference point, responds negatively to her rival's effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population.

Keywords: expectations; disappointment aversion; loss aversion; reference-dependent preferences; reference point adjustment; tournament; real effort experiment; slider task (search for similar items in EconPapers)
JEL-codes: C91 D03 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009-10
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published - published in: American Economic Review, 2012, 102 (1), 469-503

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Related works:
Journal Article: A Structural Analysis of Disappointment Aversion in a Real Effort Competition (2012)
Working Paper: A Structural Analysis of Disappointment Aversion in a Real Effort Competition (2011)
Working Paper: A Structural Analysis of Disappointment Aversion in a Real Effort Competition (2009)
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