Loss Aversion as Incentive to Study Guglielmo Volpe School of Economics and Finance Queen Mary University of London Developments in Economics Education.

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Loss Aversion as a way to provide incentives to work harder

Loss Aversion as Incentive to StudyGuglielmo VolpeSchool of Economics and FinanceQueen Mary University of London

Developments in Economics Education Conference, Birmingham 10th-11th September 2015The Broad IdeaCan 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 TalkHeterogeneous Gender Effects under Loss Aversion in the Economics Classroom: A Field ExperimentApostolova-Mihaylova M., Cooper W., Hoyt G., Marshall E.C.Southern Economic Journal, 2015, 81(4), 980-994

The ExperimentFraming Loss Aversion in assessment strategyLoss aversionIndividuals respond asymmetrically when they are faced with the prospect of gains or lossesIndividuals are much more unhappy about losing an asset as they are happy about acquiring the same asset

The hypothesisInduce 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 possibleField Experiment DesignTreatment: Penalty contract-aversionStudents are given points when the course commences and progressively lose points throughout the semester for incorrect answers

Control: Reward contract-reciprocityStudents earn points as various assessments are completed throughout the yearResultsFraming does not have an overall impact on students outcomes

Differentiated response to loss aversion by genderIn the treatment group, males score between 2.88 and 4.19 percentage points higher than the control groupIn the treatment group, females score between 3.30 and 4.33 percentage points lower than females in the control groupTime Inconsistency and Loss AversionStudent Effort in Preparing for Exams: Intertemporal Preferences and Loss AversionWst K., Beck H.Decision Sciences Journal of Innovative Education, 2012, 10(2), 245-262

HypothesesHyperbolic discounting: time inconsistencyStudents 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 AversionStudents 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 gainMethodQuestionnaire 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 examTwo versions of questionnaire:A: students asked how much extra time they would invest to improve their grade by 0.3B: students asked how much time they should be given back in return for a grade which was 0.3 worse than their acquired one

ResultsStudents behave time-inconsistentlyAt 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-aversionStudents are willing to study more to improve their grade than they would spend more leisure time in exchange for a deterioration of their gradeWhat did I doYear 1 Statistical Methods in Economics moduleAssessment7 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 performanceChange introduced first in 2013/14Framing Loss AversionTest1Test2Test3Test4Test5Test6Test7Tot. Available MarksMaximum mark you can achieve by end of semesterMax % mark you can achieve by end of semester after nth testIn class test results presented in the following way:In 2013/14 Students could see each others results

In 2014/15 Students could see only their own resultsSummary statisticsnIn Class testsProjectExam2011/1213668.766.253.32012/1318662.971.261.32013/1419174.069.753.62014/1519770.267.856.6Average assessment marks over the yearsTesting for differences in meansThe average in-class test results are significantly higher under the loss aversion frameworkThe 2014/15 average test scores are significantly (at 5% level) lower than in 2013/14Does comparing relative performance spur incentives to work harder?There are no significant differences in the project average scoresThere is a significant difference in average exam scores between 2012/13 and 2013/14It 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 GroupsBorrow 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?

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