Question

(Consider This) For people that use commitment contracts to motivate achievement of a goal, people have the choice of their penalty money (from failing to reach the goal) to go to either charities they like or charities they hate (anti-charities). From a behavioral economics perspective:

Answer 1

Answer: A. designating an anti-charity should be more effective because loss aversion will provide additional motivation .

Options:

A. designating an anti-charity should be more effective because loss

aversion will provide additional motivation

B. designating a charity should be more effective because it avoids all potential for loss

C. it shouldn’t matter whether one designates a charity or anti-charity

D. self-interest biases generally keep people from choosing the anti-charity

Step-by-step explanation:

The study of behavioral Economics shows that people are more driven by the loss of fear than the hope of gain. This is known as loss aversion. In commitment contracts where penalty money is promised to a charity or an anti-charity if the goal is not achieved, those who promise their money to an anti-charity tend to achieve their goals more. The same also applies when comparing this group and those who do not have to forego anything if they do not meet their target.

This is because giving to a charity will still seem beneficial while losing the money to an anti-charity will seem like a total loss.