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Don't aim too high: the potential costs of high aspirations

Author

Listed:
  • Astrid Matthey

    (Max-Planck-Institute of Economics Jena, Germany)

  • Nadja Dwenger

    (DIW Berlin, Germany)

Abstract

The higher our aspirations, the higher the probability that we have to adjust them downwards when forming more realistic expectations later on. This paper shows that the costs induced by high aspirations are not trivial. We ?rst develop a theoretical framework to identify the factors that determine the effect of aspirations on expected utility. Then we present evidence from a lab experiment on the factor found to be crucial: the adjustment of reference states to changes in expectations. The results suggest that the costs of high aspirations can be signi?cant, since reference states do not adjust quickly. We use a novel, indirect approach that allows us to infer the determinants of the reference state from observed behavior, rather than to rely on cheap talk.

Suggested Citation

  • Astrid Matthey & Nadja Dwenger, 2007. "Don't aim too high: the potential costs of high aspirations," Jena Economics Research Papers 2007-097, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2007-097
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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2007/wp_2007_097.pdf
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    References listed on IDEAS

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    1. Ambition hurts
      by chris dillow in Stumbling and Mumbling on 2007-12-10 21:00:50

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    Cited by:

    1. Koch, Alexander K. & Nafziger, Julia & Suvorov, Anton & van de Ven, Jeroen, 2014. "Self-rewards and personal motivation," European Economic Review, Elsevier, vol. 68(C), pages 151-167.
    2. Hsiaw, Alice, 2013. "Goal-setting and self-control," Journal of Economic Theory, Elsevier, vol. 148(2), pages 601-626.
    3. Koch, Alexander K. & Nafziger, Julia, 2011. "Goals and Psychological Accounting," IZA Discussion Papers 5802, Institute of Labor Economics (IZA).
    4. Quang Nguyen, 2011. "Does nurture matter: Theory and experimental investigation on the effect of working environment on risk and time preferences," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 245-270, December.

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    More about this item

    Keywords

    aspirations; reference state; expectations; individual utility; experiments;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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