Reference Points and Effort Provision

Johannes Abeler, Armin Falk, Lorenz Goette, David Huffman

American Economic Review · 2011 · Volume 101 · Issue 2

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)

Keywords

Consumer Economics: Empirical Analysis, Expectations, Speculations, Time Allocation and Labor Supply

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