Lorenz Götte

Bio: Lorenz Götte is an academic researcher from Federal Reserve System. The author has contributed to research in topics: Loss aversion & Disappointment. The author has an hindex of 3, co-authored 4 publications receiving 942 citations. Previous affiliations of Lorenz Götte include Institute for the Study of Labor & University of Lausanne.

Reference Points and Effort Provision

Abstract: A key open question for theories of reference-dependent preferences is what determines the reference point. One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low.

Reference Points and Effort Provision

Abstract: A key open question for theories of reference-dependent preferences is what determines the reference point. One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low.

Affect as a source of motivation in the workplace: a new model of labor supply, and new field evidence on income targeting and the goal gradient

Abstract: In this chapter we propose a new, dual-process model of labor supply, which incorporates both cognitive and affective aspects of decision-making. Consistent with evidence from neuroscience, the worker may experience conflicting cognitive and affective motivations during the workday. In particular, the affective system values effort more highly as long the worker's performance is below a personal goal, or income target, and becomes increasingly aroused as the goal approaches. As a result, affect can distort effort decisions relative to a fully cognitive benchmark, in a way that is consistent with evidence on loss aversion, and with the so-called goal-gradient effect, a tendency for animals and humans to increase effort as a goal approaches. In contrast to a standard model of labor supply, our model can predict a goal gradient, and predicts that workers may actually lower total daily effort in response to a temporary increase in the wage. Also, within-day windfall gains may have an impact on a worker's effort profile over the workday. The second part of the chapter tests this latter prediction using data from two bicycle messenger firms. At both firms, a windfall gain in the morning has the predicted impact. A lucky messenger works harder than other messengers over the first part of the afternoon, and the difference is increasing, consistent with a goal gradient. Later in the afternoon, a lucky messenger works significantly less hard than the others, consistent with having surpassed a personal earnings goal earlier in the day and having less affective motivation.

Affect as a Source of Motivation in the Workplace: A New Model of Labor Supply, and New Field Evidence on Income Targeting and the Goal Gradient

Abstract: In this chapter we propose a new, dual-process model of labor supply, which incorporates both cognitive and affective aspects of decision-making. Consistent with evidence from neuroscience, the worker may experience conflicting cognitive and affective motivations during the workday. In particular, the affective system values effort more highly as long the worker's performance is below a personal goal, or income target, and becomes increasingly aroused as the goal approaches. As a result, affect can distort effort decisions relative to a fully cognitive benchmark, in a way that is consistent with evidence on loss aversion, and with the so-called goal-gradient effect, a tendency for animals and humans to increase effort as a goal approaches. In contrast to a standard model of labor supply, our model can predict a goal gradient, and predicts that workers may actually lower total daily effort in response to a temporary increase in the wage. Also, within-day windfall gains may have an impact on a worker’s effort profile over the workday. The second part of the chapter tests this latter prediction using data from two bicycle messenger firms. At both firms, a windfall gain in the morning has the predicted impact. A lucky messenger works harder than other messengers over the first part of the afternoon, and the difference is increasing, consistent with a goal gradient. Later in the afternoon, a lucky messenger works significantly less hard than the others, consistent with having surpassed a personal earnings goal earlier in the day and having less affective motivation.

Unobservable Selection and Coefficient Stability: Theory and Evidence

Abstract: A common approach to evaluating robustness to omitted variable bias is to observe coefficient movements after inclusion of controls. This is informative only if selection on observables is informative about selection on unobservables. Although this link is known in theory in existing literature, very few empirical articles approach this formally. I develop an extension of the theory that connects bias explicitly to coefficient stability. I show that it is necessary to take into account coefficient and R-squared movements. I develop a formal bounding argument. I show two validation exercises and discuss application to the economics literature. Supplementary materials for this article are available online.

Reference-Dependent Risk Attitudes

Abstract: We use Koszegi and Rabin's (2006) model of reference-dependent utility, and an extension of it that applies to decisions with delayed consequences, to study preferences over monetary risk. Because our theory equates the reference point with recent probabilistic beliefs about outcomes, it predicts specific ways in which the environment influences attitudes toward modest-scale risk. It replicates "classical" prospect theory-including the prediction of distaste for insuring losses-when exposure to risk is a surprise, but implies first-order risk aversion when a risk, and the possibility of insuring it, are anticipated. A prior expectation to take on risk decreases aversion to both the anticipated and additional risk. For large-scale risk, the model allows for standard "consumption utility" to dominate reference-dependent "gain-loss utility," generating nearly identical risk aversion across situations.

Evaluating replicability of laboratory experiments in economics

Abstract: The replicability of some scientific findings has recently been called into question. To contribute data about replicability in economics, we replicated 18 studies published in the American Economic Review and the Quarterly Journal of Economics between 2011 and 2014. All of these replications followed predefined analysis plans that were made publicly available beforehand, and they all have a statistical power of at least 90% to detect the original effect size at the 5% significance level. We found a significant effect in the same direction as in the original study for 11 replications (61%); on average, the replicated effect size is 66% of the original. The replicability rate varies between 67% and 78% for four additional replicability indicators, including a prediction market measure of peer beliefs.

A Structural Analysis of Disappointment Aversion in a Real Effort Competition

Abstract: We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. Our theory predicts that a disappointment averse agent, who is loss averse around her endogenous expectations-based reference point, responds negatively to her rival's effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population.