Do People Anticipate Loss Aversion?

In this paper, we directly test a central prediction of loss aversion in con-tracting: in order to avoid losses, people will exert more effort under a contract in a loss frame than a gain frame. Anticipating this, they will prefer the gain-framed contract if given the choice. In a series of laboratory experiments, we find that individuals do indeed work harder when incentives are framed as a loss. However, we do not find evidence that they prefer the gain frame. In fact, our results suggest that individuals have a directional preference for contracts framed as a loss. These findings have implications for the theory of reference-dependent preferences and optimal incentive design.