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.
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