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?