Framing an outcome as a loss causes individuals to expend extra effort to avoid that outcome (Tversky & Kahneman, 1991). Since classroom performance is a function of student effort in search of a higher grade, we seek to use loss aversion to encourage student effort. This field quasi-experiment endows students with all of the points in the course upfront, then deducts points for each error throughout the semester. Exploiting two course sequences in the business school of a Midwestern university, a control for domain-specific knowledge, this study examines the impact of loss aversion when controlling for the student’s knowledge in a specific subject. This quasi-experiment indicates that students perform three to four percentage points better when controlling for student ability and domain knowledge (148 subjects). This result is significant at the 1% level in our most robust specification (p = 0.0020). This result is confirmed by a specification including four courses and controlling for student characteristics (217 subjects, p = 0.0190)
