Loss Aversion as Incentive to Study Guglielmo Volpe

Loss Aversion as Incentive to Study Guglielmo Volpe School of Economics and Finance Queen Mary University of London Developments in Economics Education Conference, Birmingham 10 th-11 th 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 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?