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Applying for jobs in the lab: The effect of risk attitudes and reference points

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  • Damgaard, Mette T.
  • Sydnor, Justin

Abstract

Applying for jobs resembles entering a lottery, where there is an up-front cost of entering and a large potential award gained with some probability. Reference-dependent models predict that the risk attitudes people have toward these types of lotteries will depend on what reference point they use. In this paper, we consider whether a job-application setting in the laboratory can give rise to strong loss aversion and application avoidance. We test for this in a real-effort experiment where we observe application decisions for a job paying a bonus conditional on different levels of an application fee. We also implement a neutral monetary lottery with the same consequential decisions. Our experimental evidence reveals substantial reluctance to take on risk in job applications, but to an extent similar to that found in lottery entry decisions. We do not find support for application avoidance.

Suggested Citation

  • Damgaard, Mette T. & Sydnor, Justin, 2019. "Applying for jobs in the lab: The effect of risk attitudes and reference points," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 79(C), pages 165-179.
    • Handle: RePEc:eee:soceco:v:79:y:2019:i:c:p:165-179
    DOI: 10.1016/j.socec.2019.02.009
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    More about this item

    Keywords

    Application avoidance; Job search; Laboratory experiment; Loss aversion; Reference dependence;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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