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Do Changing Reference Levels Affect The Long-Term Effectiveness Of Incentive Contracts?, Lee Michael Kersting
Do Changing Reference Levels Affect The Long-Term Effectiveness Of Incentive Contracts?, Lee Michael Kersting
USF Tampa Graduate Theses and Dissertations
This study examines whether reference levels change over time and the impact on individuals' risk-taking behavior. I apply expectations-based reference-dependent preferences theory to analyze whether individuals' reference levels change over time in an economic setting. The theory suggests that individuals develop reference levels based on expectations of future outcomes (Koszegi and Rabin 2006). Therefore, this study examines whether individuals' expectations affect the setting of their reference level and how possible changes in reference levels affect subsequent risk-taking behavior. This study also provides evidence on how budget-based contracts impact individual risk taking behavior in a single period setting. Prior research has …