TESTING REFERENCE DEPENDENCE AND LOSS AVERSION IN STUDENTS’ ACADEMIC PERFORMANCE
Based on Tversky and Kahneman’s Prospect Theory, the objective of this paper is to test and analyze the existence of reference dependence and loss aversion in students’ academic performance. Experimental research in Psychology shows that people’s reactions and responses depend on “reference points”, i.e. individuals tend to compare and evaluate a result by using a reference point: a student will form an idea about how good the grade s/he has obtained in a given subject is by considering not just the actual grade, but the comparison between the actual grade and a reference point (such as “the expected grade” or the “average grade in the class”). As for loss aversion; this implies that changes from reference points may be valued differently depending on whether they are gains (getting a higher grade than expected) or losses (getting a lower grade than expected). Specifically, people are more sensitive to losses relative to their reference point than to gains. In this regard, this theory predicts that the absolute level of the change in a particular dimension (e.g. satisfaction with one’s performance) due to a loss is greater than the corresponding impact of an equal gain. Therefore, we first test whether students are reference-dependent and then whether they show loss aversion when they compare their actual grades to the expected grades.
Additionally, in an attempt to further explore these phenomena (reference-dependence and loss aversion), we examine whether the students’ emotional response (satisfaction/dissatisfaction) to the performance in a cognitive test can be explained and/or moderated by different musical stimuli: there is strong evidence in the literature that music can have an influence on a person’s emotional state. The empirical application is based on a sample of 70 students, who were divided up into three groups, each of them being exposed to a distinct stimulus: “classical music”, “heavy-metal music” and “no music”.
The data analysis relies on the logistic regression -to examine the satisfaction behavior (whether the student feels satisfied or dissatisfied with his/her performance in the cognitive test)-, and the classical regression model -to study the degree of satisfaction (the intensity with which the student feels satisfied or dissatisfied). The results obtained show that both the analysis of the satisfaction behavior and the examination of the degree of satisfaction/dissatisfaction arrive at the conclusion that the “difference between the actual grade and the expected grade” has greater explanatory ability than the “actual grade” by itself (this variable on its own does not seem to capture all the information being processed by the student), supporting the reference-dependence hypothesis. Also, we find an asymmetrical effect as the negative impact derived from “negative surprises” (when the student obtains a lower grade than expected) exerts a greater influence on satisfaction/dissatisfaction than the positive impact derived from “positive surprises” (when the students gets a higher grade than expected), favoring the loss aversion phenomenon. When the musical stimuli are introduced, we clearly observe they have an influence on the students’ state of satisfaction and on the degree of satisfaction/dissatisfaction, moderating both reference-dependence and loss aversion. As we deal with students’ attitudes, practical implications are straight.