Use of Loss Aversion to Enhance the Efficacy of Teacher's Incentives - Its Effect on Intrinsic Motivation

The classical model in economics considers human beings as rational decision makers (Amos Tversky & Daniel
Kahneman, 1981). The important departure from rationality is the pattern of loss aversion, where losses affect
individuals more than gains (Daniel Kahneman & Amos Tversky, 1979). A recent study has demonstrated that
exploiting power of loss aversion teachers are paid in advance and asked to give back money if their students dont
improve sufficiently has significantly improved the performance of teachers (Ronald G.Fryer, Jr., Steven D. Levitt,
John List and Sally Sadoff, 2012).
However, the study conducted by Uri Gneezy and Aldo Rustichini (2000) in Israeli day care centers has found that,
Once a Commodity, always a Commodity". By introducing incentives under loss aversion we may risk the
commoditizing of education and thereby affect the intrinsic motivation of the teachers.Though external motivating
factors boost the performance of the teacher, it is evident that the intrinsic motivation is what keeps a teacher
teaching and it will be what continues to motivate them for years to come( SH Marston,2010; Kamile Demir,2011). In
this study, we aim to study the effect of use of incentives under the condition of loss aversion on the intrinsic
motivation of the teachers.
Research Question
Does the process of enhancing the efficacy of teacher's incentives by exploiting loss aversion affect the intrinsic
motivation of the teacher?
The Hypothesis
Null Hypothesis:
H0 - There is no effect on the intrinsic motivation of a teacher when we use Loss Aversion to enhance the efficacy of
teachers incentives
Alternate Hypothesis,
H1 The intrinsic motivation of a teacher is affected when we use Loss Aversion to enhance the efficacy of teachers
incentives
Experimental Design
In this study 100 faculty members (convenience sample) of our institution are randomly divided into 2 groups of 50-
each and treated with two different conditions. As the two conditions are independent samples that receive different
treatments, the experiment is between-subjects.
Control Condition : The staff under this condition were not offered any performance related incentives and their
performance over the period of three years was studied.
Test Condition : The staff under this condition were exposed to Loss Condition in the I-Year The faculty were
paid 10% of their gross salary as upfront money and told that the same has to be returned back, in-case they fail to
show an increase of 5% in their performance. The same group is told in the beginning of II & III-Year that no such
incentive will be paid as upfront.
Further, the improvement or decline in the performance of teachers in both the conditions is studied comparing the
current year pass percentage with the average pass percentage for the preceding 5 years ( base level for comparison )
in the subjects handled by them. And remaining all other factors being constant between the two conditions in II & III
Year, any change in performance is attributed to intrinsic factors of motivation.
The performance and the intrinsic motivation of the teachers are the dependent variables and the effect of
independent variables (Control Condition or Test Condition) on the dependent variables is studied.
The experiment has the construct validly because it tries to measure the performance in order to make claims about
the effect on intrinsic motivation.
The faculty handle same subjects in all the 3 years and preceding 5 years performance is taken into account to nullify
the effect of difficulty of the subjects and student's quality on the experiment results. As the manipulations in the
experiment conditions are actually affecting the outcome, the experiment has internal validly.
Since, we study the effect of framing incentives under the condition of loss aversion in the areas governed by both
market norms and social norms, the results can be applied to situations outside the context of experiment. Thus, the
experiment has external validity.
The one-way ANOVA is used to test the differences among the two conditions.
Implications
If the results find a significant decline in the II and III Year of test condition after initial improvement in I-
Year, it proves our alternate hypothesis and implies that we may initially improve on measured performances by
using loss aversion to enhance the efficacy of teacher incentives, but by doing so we are risking the commoditizing of
the teaching process and affecting the intrinsic motivation of the teachers.
This experiment further helps us to understand that commoditization takes away the meaning from work and lack of
meaning effects intrinsic motivation.
Education is a sector where market norms and social norms co-exist. The study will have implications for all those in
education sector who want to emphasize on market norms that once if market norms replace social norms, it will be
difficult to re-establish the social norms.
Evaluation/feedback on the above work
Note: this section can only be filled out during the evaluation phase.
Category I: Background Research
Did the student provide a brief background summary of research?
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Score from yourself: 1
Did the student cite his or her sources? (at least one is required for a yes)
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Category II: Research Question and Hypothesis
Does the research question stem from the background research?
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Did the student clearly explain the research question?
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Did the student clearly explain the hypothesis?
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Category III: Experimental Design
Did the student describe a clear experimental design?
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Did the student identify the independent variable(s)?
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Did the student identify the dependent variable(s)?
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Does the experiment have construct validity? (Does it test what it is attempting to test?)
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Does the experiment have internal validity? (Did the experimental manipulation cause the outcome of the study?)
Score from your peers: 1
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Does the experiment have external validity? (Are the results generalizable? Will the results apply to other situations
outside of the experimental context?)
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Category IV: Implications
Did the student describe the implications of the hypothesized results?
Score from your peers: 1
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Will this experiment contribute something to the understanding of a particular topic or theory?
Score from your peers: 1
Score from yourself: 1

Category V: Feedback
Compliments, questions, and explanations of your scoring are always very much appreciated! (Just
remember to be respectful.)
self This was a constructive academic exercise I took up after a very long time.
peer 1 Very clear and well-presented. I really enjoy reading it. Good work!
peer 2 A very interesting research question and one which could contribute to understanding the application of
behavioural economics to the education sector. Also very nicely written and conveniently formatted for evaluation!
peer 3 You had an interesting idea. Some issues arise however. First, the research hypothesis is not the same as the
null hypothesis significance testing (NHST). So you don't have to state H(0) & H(Alt). You have to state what you
really expect to happen. Note that the way you stated it, it is not clear what you expect: H(0) or H(alt). And surely, you
cannot expect both. Second, I think that the period of your study is very large! For such a long period, you can be no
longer sure that it is only your manipulation that makes the difference, because there will be so many intervening
variables that you cannot control for. Note that your study will take place outside the laboratory, and there would be
always plenty of confounding factors there, even if the period was shorter. So in the end you are not sure whether the
results are due to your manipulation or to some unknown factors. Therefore, the internal validity of your experiment
is in doubt. You cannot say that your independent variables (IVs) are the two conditions either. The IV is what you
manipulate. In your case, this is the incentive. Participants either don't receive it(control condition) or do receive it
(experimental group). A further complication in your design is that your control group has several values of your
independent variable: the first receive incentive, then not. So there is a within-subjects (repeated measures) aspect in
your design. It may be that your design is not between subjects, but mixed. Therefore, you can't use one-way ANOVA,
but a mixed design ANOVA. A small note to citations: in the text, you only cite last names of authors. In the reference
list, you cite last names + first letters of first & second names. Keep going!
peer 4 Interesting point
peer 5 good job.
Please include any cited works in this area.
References:
1. Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science 211: 453458.
2. Kahneman, D., & Tversky, A. (1979). Prospect Theory: an analysis of decision under risk. Econometrica 47: 263
291.
3. Fryer, Roland G.,Levitt, Steven D., List, John A., & Sadoff, Sally. (2012). Enhancing the Efficacy of Teacher Incentives
through Loss Aversion: A Field Experiment. NBER Working Paper No. w18237
4. Gneezy, Uri., & Rustichini, Aldo. (2000). A Fine Is a Price. Journal of Legal Studies,29(1): 118
5. Marston, Susan Hemphill.(2010). Why Do They Teach? A Comparison of Elementary, High School, and College
Teachers. Education 131.2
6. Demir, Kamile. (2011). Teachers Intrinsic and Extrinsic Motivation as Predictors of Student Engagement. New
World Sciences Academy 6.2