To Gain with Less Pain?: Reference-Dependence in Students' Exam Performance and Effort Provision

Aspiration-based reference point has attracted more attention in recent years, for example, treating the goal or target of an individual as her reference point. Yet in one of those fields that the role of aspiration is perhaps most frequently emphasised, aspiration as a reference point is still understudied – in education. This paper studies the double-sided effects of the aspiration level as a reference point for undergraduate students. Using field data collected with surveys and from the administration, we show that students do exhibit reference-dependence with the individual exam performance goal being their reference point. Students are loss averse under the definition of loss aversion proposed by Diecidue and Van De Ven (2008), evidenced by a significant discontinuity in their proxied utility at the achievement of the reference point. Moreover, this performance-goal-based reference point creates a trade-off between students’ satisfaction with their performance and effort provision. Such results should remind the educators of re-thinking about the pedagogical methods related to goal-setting. This implication can also be generalised to organisations with similar contexts, for example, companies that have performance goals for employees. We also discuss the formation of the reference point by looking into the dynamic adaptations of the aspiration over time.