Investment in education under disappointment aversion

Dan Anderberg, Claudia Cerrone

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Abstract

This paper develops a model of risky investment in education under disappointment aversion, modeled as loss aversion around one’s endogenous expectation. The model shows that disappointment aversion reduces the optimal investment in education for lower ability people and increases it for higher ability people, thereby magnifying the investment gap between them generated by the riskiness of education. Policies aimed at influencing students’ expectations can reduce early dropout.
Original languageEnglish
Pages (from-to)1533-1540
Number of pages8
JournalEconomics Bulletin
Volume37
Issue number3
Publication statusPublished - 2 Jul 2017

Keywords

  • Education
  • Behaviour
  • Disappointment

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