Loss Aversion as Incentive to Study
Guglielmo Volpe
School of Economics and Finance
Queen Mary University of London
Developments in Economics Education Conference, Birmingham 10th-11th September 2015
The Broad Idea
Can we use insights from Behavioural Economics to inform
teaching, learning and assessment strategy in a way that
academic and (possibly) other aspects of students’
performance are enhanced?
The Talk
“Heterogeneous Gender Effects under Loss Aversion in the
Economics Classroom: A Field Experiment”
Apostolova-Mihaylova M., Cooper W., Hoyt G., Marshall E.C.
Southern Economic Journal, 2015, 81(4), 980-994
The Experiment
Framing Loss Aversion in assessment strategy
• Loss aversion
• Individuals respond asymmetrically when they are faced with
the prospect of gains or losses
• Individuals are much more unhappy about losing an asset as
they are happy about acquiring the same asset
• The hypothesis
• Induce higher student performance by framing grades as a
reduction from the maximum points allowed, as opposed to a
gain in score from the minimum points possible
Field Experiment Design
• Treatment: Penalty contract-aversion
• Students are given ‘points’ when the course commences
and progressively lose points throughout the semester
for incorrect answers
• Control: Reward contract-reciprocity
• Students earn points as various assessments are
completed throughout the year
Results
• Framing does not have an overall impact on students’ outcomes
• Differentiated response to loss aversion by gender
• In the treatment group, males score between 2.88 and 4.19 percentage
points higher than the control group
• In the treatment group, females score between 3.30 and 4.33
percentage points lower than females in the control group
Time Inconsistency and Loss Aversion
“Student Effort in Preparing for Exams: Intertemporal Preferences
and Loss Aversion”
Wüst K., Beck H.
Decision Sciences Journal of Innovative Education, 2012, 10(2),
245-262
Hypotheses
Hyperbolic discounting: time inconsistency
• Students behave time inconsistently and prefer the largerlater reward i.e. a good grade, in the long run, but in the
short term sacrifice the prospects of a good grade for
immediate leisure time
Loss Aversion
• Students will be more eager to avoid a deterioration of their
grade which would be perceived as a loss than they are to
sacrifice time or money to improve their grade which would
be perceived as a gain
Method
• Questionnaire distributed at start and end of term (before final
exam)
• Students asked about the total time they planned to spend (or
had spent) on preparation of final exam
• Two versions of questionnaire:
• A: students asked how much extra time they would invest to
improve their grade by 0.3
• B: students asked how much time they should be ‘given
back’ in return for a grade which was 0.3 worse than their
acquired one
Results
• Students behave time-inconsistently
• At the beginning of the term, students understand that it
is necessary to learn, but the planned number of learning
hours decreases significantly as the end of the term
approaches
• Students show loss-aversion
• Students are willing to study more to improve their grade
than they would spend more leisure time in exchange for
a deterioration of their grade
What did I do
• Year 1 Statistical Methods in Economics module
• Assessment
• 7 very short (5 minutes) in class tests worth 2 marks each (last test is
worth 3 marks)
• Statistical project (15 marks)
• Final exam (70 marks)
• Frame ‘Loss Aversion’ in assessment in order to induce more
effort/better performance
• Change introduced first in 2013/14
Framing Loss Aversion
In class test results presented in the following way:
Test Test Test Test Test Test Test Tot.
Maximum
1
2
3
4
5
6
7 Available mark you
Marks
can achieve
by end of
semester
Max % mark
you can achieve
by end of
semester after
nth test
• In 2013/14 Students could see each other’s results
• In 2014/15 Students could see only their own results
Summary statistics
Average assessment marks over the years
n
In Class tests Project
Exam
2011/12
136
68.7
66.2
53.3
2012/13
186
62.9
71.2
61.3
2013/14
191
74.0
69.7
53.6
2014/15
197
70.2
67.8
56.6
Testing for differences in means
• The average in-class test results are significantly higher under
the ‘loss aversion’ framework
• The 2014/15 average test scores are significantly (at 5% level)
lower than in 2013/14
• Does comparing relative performance spur incentives to work harder?
• There are no significant differences in the project average
scores
• There is a significant difference in average exam scores
between 2012/13 and 2013/14
• It is likely that this difference has to do with my exam paper design….
• But, generally, no evidence of impact on exam marks….
Random thoughts…..
• Could loss-aversion play a role? More statistical analysis….
• Need to check for gender differences?
• Treatment and Control Groups
• Borrow insights from behavioural economics?
• Potentially costless changes that have positive impact?
• E.g.: group work, learning diaries, learning contract etc. to ameliorate
‘time inconsistency’ problem?