ECON 310 Lecture 7: winter 2019
30 Jan 2019
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What is the reference point : recent expectations. An experiment by falk et al (2011): students were given a boring task (entering data) to perform a piece- rate. They could take as long as they wanted. After they finished working, they flipped a coin: heads: received what they earned (hours of work*salary); tails: received a predetermined amount x$. Two conditions: when x=3. 5$, lots of subjects stop working when they"ve earned 3. 50, when x=7$, lots of subjects stop working when they"ve earned 7. Perhaps that students do the same as taxi drivers: income targeting. But interestingly enough, the income is random; selected by the experimenter. Koszegi and rabin (2006): the reference point for evaluating outcomes is recent expectations about those outcomes. Ex: if you go to the dentist expecting a big surgery, but it ends up being just a cleaning; feels like a gain, although a cleaning isn"t pleasant either; just less.
