A test taker's gamble: an analysis of the framing effect on a student's degree of risk aversion under a negative marking regime

Abstract

A test or an examination in an educational setting may be considered as a situation in which individuals face a series of decisions under risk. The experiment conducted in this study replicates an actual test situation in which students approach a multiple choice test having accumulated known scores from previous assessments, each contributing towards an aggregate. It permits the analysis of the framing effect on a student’s degree of risk aversion, based on their tendency to guess, under the adoption of a negative marking regime. This enables an evaluation of whether or not the behaviour of students, influenced by the framing effect of a scoring rule as a potential gain or loss relative to a reference point, is consistent with the behaviour initiated by prospect theory. Furthermore, this study investigates whether a deviation of points further into the gain and loss domain yields increasingly or decreasingly risk averse behaviour. In general, the findings reveal that individuals exhibit a higher degree of risk aversion in the gain domain in comparison to the loss domain. In addition, individuals tend to become less risk averse/more risk seeking as a deviation of points away from the reference in the loss domain such that the lowest degree of risk aversion is displayed at the extreme end of the loss domain. Similarly, for a deviation of points further away from the reference in the gain domain, individuals in financial need i.e. those who are recipients of a lower monthly income tend to become increasingly risk averse, while those who are recipients of a higher monthly income tend to become decreasingly risk averse.