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American Economic Review: Vol. 102 No. 1 (February 2012)

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A Structural Analysis of Disappointment Aversion in a Real Effort Competition

Article Citation

Gill, David, and Victoria Prowse. 2012. "A Structural Analysis of Disappointment Aversion in a Real Effort Competition." American Economic Review, 102(1): 469-503.

DOI: 10.1257/aer.102.1.469

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. We predict that a disappointment averse agent, who is loss averse around her endogenous choice-acclimating 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. (JEL C91, D12, D81, D84)

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Authors

Gill, David (U Oxford)
Prowse, Victoria (Cornell U)

JEL Classifications

C91: Design of Experiments: Laboratory, Individual
D12: Consumer Economics: Empirical Analysis
D81: Criteria for Decision-Making under Risk and Uncertainty
D84: Expectations; Speculations


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