Author(s): Budescu DV, Bo Y
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Abstract We investigate the implications of penalizing incorrect answers to multiple-choice tests, from the perspective of both test-takers and test-makers. To do so, we use a model that combines a well-known item response theory model with prospect theory (Kahneman and Tversky, Prospect theory: An analysis of decision under risk, Econometrica 47:263-91, 1979). Our results reveal that when test-takers are fully informed of the scoring rule, the use of any penalty has detrimental effects for both test-takers (they are always penalized in excess, particularly those who are risk averse and loss averse) and test-makers (the bias of the estimated scores, as well as the variance and skewness of their distribution, increase as a function of the severity of the penalty).
This article was published in Psychometrika
and referenced in Journal of Accounting & Marketing