Reference Points and Effort Provision

Abeler, Johannes; Falk, Armin; Goette, Lorenz; Huffman, David

doi:10.1257/aer.101.2.470

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American Economic Review: Vol. 101 No. 2 (April 2011)

AER Volume. 101, Issue 2 | left

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Reference Points and Effort Provision

Article Citation

Abeler, Johannes, Armin Falk, Lorenz Goette, and David Huffman. 2011. "Reference Points and Effort Provision." American Economic Review, 101(2): 470-92.

DOI: 10.1257/aer.101.2.470

Abstract

A key open question for theories of reference-dependent preferences 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. (JEL D12, D84, J22)

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Authors

Abeler, Johannes (U Nottingham)
Falk, Armin (U Bonn)
Goette, Lorenz (U Lausanne)
Huffman, David (Swarthmore College)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
D84: Expectations; Speculations
J22: Time Allocation and Labor Supply