Motivating Innovation: The Effect of Loss Aversion on the Willingness to Persist

We investigate the willingness of individuals to persist at exploration when confronted by prolonged periods of negative feedback. We design a two-dimensional maze game and run a series of randomized experiments with human subjects in the game. Our results suggest individuals explore more when they...

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Bibliographic Details
Published in:The review of economics and statistics 2020-07, Vol.102 (3), p.569-582
Main Authors: Rosokha, Yaroslav, Younge, Kenneth
Format: Article
Language:English
Subjects:
Decision making
Feedback
Games
Innovations
Prospect theory
Reinforcement
Research subjects
Uncertainty
Willingness
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Summary:We investigate the willingness of individuals to persist at exploration when confronted by prolonged periods of negative feedback. We design a two-dimensional maze game and run a series of randomized experiments with human subjects in the game. Our results suggest individuals explore more when they are reminded of the incremental cost of their actions, a result that extends prior research on loss aversion and prospect theory to environments characterized by model uncertainty. In addition, we run simulations based on a model of reinforcement learning that extend beyond two-period models of decision making to account for repeated behavior in longer-running, dynamic contexts.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest_a_00846