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Loss Aversion as Incentive to Study
Guglielmo VolpeSchool of Economics and FinanceQueen 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
larger-later 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
Test1
Test2
Test3
Test4
Test5
Test6
Test7
Tot. Available Marks
Maximum mark you can achieve by end of semester
Max % mark you can achieve by end of semester after nth test
In class test results presented in the following way:
• In 2013/14 Students could see each other’s results
• In 2014/15 Students could see only their own results
Summary statistics
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
Average assessment marks over the years
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?