Domestic attempts to use financial incentives for teachers to increase student
achievement have been ineffective. In this paper, we demonstrate that exploiting the
power of loss aversion—teachers are paid in advance and asked to give back the money if
their students do not improve sufficiently—increases math test scores between 0.201
(0.076) and 0.398 (0.129) standard deviations. This is equivalent to increasing teacher quality by more than one standard deviation. A second treatment arm, identical to the loss aversion treatment but implemented in the standard fashion, yields smaller and statistically insignificant results. This suggests it is loss aversion, rather than other features of the design or population sampled, that leads to the stark differences between our findings and past research.