Download or read book Toward an Understanding of Reference Dependent Labor Supply written by Steffen E. Andersen and published by . This book was released on 2014 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Perhaps the most powerful form of framing arises through reference dependence, wherein choices are made recognizing the starting point or a goal. In labor economics, for example, a form of reference dependence, income targeting, has been argued to represent a serious challenge to traditional economic models. We design a field experiment linked tightly to three popular economic models of labor supply-two behavioral variants and one simple neoclassical model-to deepen our understanding of the positive implications of our major theories. Consistent with neoclassical theory and reference-dependent preferences with endogenous reference points, workers (vendors in open air markets) supply more hours when presented with an expected transitory increase in hourly wages. In contrast with the prediction of behavioral models, however, when vendors earn an unexpected windfall early in the day, their labor supply does not respond. A key feature of our market in terms of parsing the theories is that vendors do not post prices rather they haggle with customers. In this way, our data also speak to the possibility of reference-dependent preferences over other dimensions. Our investigation again yields results that are in line with neoclassical theory, as bargaining patterns are unaffected by the unexpected windfall.

Download or read book Reference Dependent Preference and Labor Supply written by Guanfu Fang and published by . This book was released on 2019 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the daily labor supply decision of Hangzhou cabdrivers. We find that Hangzhou cabdrivers' wage elasticity is significantly positive, their working decisions are largely affected by shift time, and crude proxy variables for income and hours targets could hardly explain their working behavior. Nevertheless, Hangzhou cabdrivers are still affected by reference dependent preference. Using new empirical strategies, we show that cabdrivers are more likely to continue working when wage rates are unexpectedly low and more likely to quit when wage rates are unexpectedly high.

Download or read book Toward an Understanding of Reference Dependent Labor Supply written by Steffen Andersen and published by . This book was released on 2018 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Perhaps the most powerful form of framing arises through reference dependence, wherein choices are made recognizing the starting point or a goal. In labor economics, for example, a form of reference dependence, income targeting, has been argued to represent a serious challenge to traditional economic models. We design a field experiment linked tightly to three popular economic models of labor supply--two behavioral variants and one simple neoclassical model--to deepen our understanding of the positive implications of our major theories. Consistent with neoclassical theory and reference-dependent preferences with endogenous reference points, workers (vendors in open air markets) supply more hours when presented with an expected transitory increase in hourly wages. In contrast with the prediction of behavioral models, however, when vendors earn an unexpected windfall early in the day, their labor supply does not respond. A key feature of our market in terms of parsing the theories is that vendors do not post prices rather they haggle with customers. In this way, our data also speak to the possibility of reference-dependent preferences over other dimensions. Our investigation again yields results that are in line with neoclassical theory, as bargaining patterns are unaffected by the unexpected windfall.

Download or read book Reference dependent Preferences and Labor Supply written by Henry S. Farber and published by . This book was released on 2008 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Role of Reference Dependence and Hyperbolic Discounting Preferences in Labor Supply written by Quang Nguyen and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We integrate reference dependence and hyperbolic time preferences into the optimal stopping framework to study the agent's decision on the working duration. A key insight from our theoretical model is that not only income target but patience as well as the interaction between the two plays a role in that decision. Less patient agents may work for shorter durations; having a target helps hyperbolic discounting agents overcome temptation of finishing the work earlier than the optimal stopping time. An estimation strategy is then developed based on both the reduced form and the structural model approach. Using data for Hawaii longline fishery we find that less patient captains seem to have shorter fishing trips. We also find some evidence that fishermen have references (targets) for revenue when making decisions about the length of fishing trips. Together, the findings suggest the necessity to integrate both reference dependence and hyperbolic time preferences into the model of labor supply.

Download or read book Reference Dependence and Labor market Fluctuations written by Kfir Eliaz and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We incorporate reference-dependent worker behavior into a search-matching model of the labor market, in which firms have all the bargaining power and productivity follows a log-linear AR(1) process. Motivated by Akerlof (1982) and Bewley (1999), we assume that existing workers' output falls stochastically from its normal level when their wage falls below a "reference point", which (following Kőszegi and Rabin (2006)) is equal to their lagged-expected wage. We formulate the model game-theoretically and show that it has a unique subgame perfect equilibrium that exhibits the following properties: existing workers experience downward wage rigidity, as well as destruction of output following negative shocks due to layoffs or loss of morale; newly hired workers earn relatively flexible wages, but not as much as in the benchmark without reference dependence; market tightness is more volatile than under this benchmark. We relate these findings to the debate over the "Shimer puzzle" (Shimer (2005)).

Download or read book Handbook of Behavioral Economics Foundations and Applications 1 written by and published by Elsevier. This book was released on 2018-09-27 with total page 749 pages. Available in PDF, EPUB and Kindle. Book excerpt: Handbook of Behavioral Economics: Foundations and Applications presents the concepts and tools of behavioral economics. Its authors are all economists who share a belief that the objective of behavioral economics is to enrich, rather than to destroy or replace, standard economics. They provide authoritative perspectives on the value to economic inquiry of insights gained from psychology. Specific chapters in this first volume cover reference-dependent preferences, asset markets, household finance, corporate finance, public economics, industrial organization, and structural behavioural economics. This Handbook provides authoritative summaries by experts in respective subfields regarding where behavioral economics has been; what it has so far accomplished; and its promise for the future. This taking-stock is just what Behavioral Economics needs at this stage of its so-far successful career. Helps academic and non-academic economists understand recent, rapid changes in theoretical and empirical advances within behavioral economics Designed for economists already convinced of the benefits of behavioral economics and mainstream economists who feel threatened by new developments in behavioral economics Written for those who wish to become quickly acquainted with behavioral economics

Download or read book Essays in Behavioral Economics written by Janos Zsiros and published by . This book was released on 2016 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two distinct chapters that answer questions in behavioral economics about the relationship between labor supply and reference points. Each chapter is divided into two parts. The first part of the first chapter proposes the theoretical background to better understand labor supply decisions of workers with multiple reference points. The second part contains empirical results from a laboratory experiment. The second chapter analyzes a classical contract theory problem with agents who have non-standard, reference dependent, preferences. The first part of the second chapter analyzes the principal-agent model under full information, while the second part of the chapter introduces uncertainty into the model. The first essay uses a real effort experiment to test the predictions of models with expectation-based and history-based reference points. For the expectationbased reference point, an agent cares about outcomes relative to her expectation, and she experiences a loss in utility if the actual outcome is below her expectation. For the history-based reference point, an agent evaluates her actual outcome compared to an outcome that she had in the past, and she experiences a loss in utility if the actual outcome is below the one from the past. In the experiment, I manipulate participants' past earnings exogenously to establish a history-based reference point and manipulate expectations about future earnings to establish an expectation-based reference point. Consistent with the model's predictions, I found evidence of both kinds of reference points. Subjects work significantly more in the high expectation treatment; on average, they earn $1.1 more (a marginal effect of 18.2%) in the high expectation treatment compared to the average earnings of $6.03 in the low expectation treatment. Subjects in the high history treatment earn $0.46 more (a marginal effect of 7.2%) compared to the average earnings of $6.35 in the low history treatment. The sign of the effect is in line with the main model's prediction for effort level, but the size of the effect is not significantly different from zero due to the low power of the test. The second essay analyzes a principal-agent model with an agent who has reference-dependent preferences with exogenously given reference point over either money or effort level. I find that the optimal effort level, designed by the principal, does not depend on the reference salary. I show that employers with projects where effort is crucial hire agents with high reference points or push up the reference points of agents whose initial reference point is low. Finally, I discuss the predictions of the model for matching between employers and workers based on workers' reference dependence. I show that employers with projects where effort is crucial hire agents with high reference points or push up the reference points of agents whose initial reference point is low. The last part of the essay presents a theoretical model, in which the principal cannot observe the effort level produced by the agent, and is thus unable to make the optimal wage contract depend upon it. I analyze the Lagrangian corresponding to the problem with uncertainty and I derive conditions for the optimal wage contract and optimal effort level.

Download or read book Reference Dependent Preferences written by Evelyn Stommel and published by Springer Science & Business Media. This book was released on 2012-11-02 with total page 229 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most of our daily decisions are made under uncertainty and risk, without complete information about all relevant aspects. We all constantly make such decisions, from the simplest “should I take my raincoat today?” to more serious examples, such as those on investment and portfolio decisions, holding of shares, insurance patterns, or negotiation processes. Within these situations, the bounded rationality of individuals and institutions towards risk and uncertainty is embedded. The central theory underlying this study is prospect theory, an adequate model to predict the real and most often bounded rationality of human behavior given certain incentives, preferences, and constraints. Evelyn Stommel investigates a crucial question within behavioral economics, namely the research on reference points within human decision making processes. Based on experimental investigations, she focuses three key challenges: what constitutes a reference point, the process of the formation of a reference point, and factors influencing the formation of reference points.

Download or read book Neoclassical Intertemporal and Reference Dependent The Wage Elasticity of New York City Cab Drivers written by Jianbo Luo and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Since 1997, five papers debating the labor supply elasticity of New York City cab drivers have been published in top 5 economics journals. The most recent paper by Farber (2015 Quarterly Journal of Economics) uses an instrumental variable (IV) approach and finds that unanticipated wage elasticity is positive, which is inconsistent with reference-dependent preferences. By contrast, this paper finds that unanticipated wage elasticity is negative when controlling for measurement error and division bias. Moreover, after providing theoretical and empirical evidence showing that Farber's IV approach is inconsistent, I propose a new IV that yields negative elasticity. In addition, I find that the elasticity becomes more negative as cab driver experience grows. Although negative elasticity is consistent with reference-dependent preferences, I propose an approach based on the neoclassical intertemporal model in which anticipated wage elasticity is positive while unanticipated elasticity is negative, which is also compatible with reference-dependent preferences.

Download or read book Three Essays on Behavioral Economics written by Juanjuan Meng and published by . This book was released on 2010 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates two topics on behavioral economics: reference-dependent preferences and social utility. Chapter 1 and 2 provide field evidence from labor market and financial market to support reference-dependent model that treats expectations as reference points. Chapter 3 explores the implications of social distance on the endogenous emergence of personal relationships and impersonal market exchange. Chapter 1 : A model of cabdrivers' labor supply is proposed, building on Farber's (2005, 2008) empirical analyses and Kószegi and Rabin's (2006; henceforth "KR") theory of reference-dependent preferences. Following KR, the proposed model has targets for hours as well as income, determined by proxied rational expectations. The model, estimated with Farber's data, reconciles his finding that stopping probabilities are significantly related to hours but not income with Colin Camerer et al.'s (1997) negative "wage" elasticity of hours; and avoids Farber's criticism that estimates of drivers' income targets are too unstable to yield a useful model of labor supply. Chapter 2 : An investor' aversion to losses relative to a reference point in the stock market predicts a V-shaped relationship between the optimal position in a stock and current gains from that stock. Estimates from Odean's (1999) individual trading records show that (i) the predicted V-shape relationship exists for a large majority of investors, and (ii) expectations are the most likely determinant of investors' reference points. The V-shaped relationship and the implication of the initial purchase decision that expectations are mostly positive yield a simple explanation of the disposition effect. Chapter 3 : Personal relationships and impersonal exchange have been previously modeled in ways that prevent them from coexisting in equilibrium as contract enforcement mechanisms. Empirical evidence nonetheless suggests that they sometimes coexist. This paper introduces social surplus into exchange payoff, which is determined by social distance and specific to personal relationships but not to impersonal exchange. This approach allows the two modes of exchange to coexist in equilibrium. The possibility of impersonal exchange improves welfare and equality among buyers in general. But there also exist cases where competition between the two forms of exchange makes welfare and equality deteriorate.

Download or read book Do Workers Work More If Wages are High written by Ernst Fehr and published by . This book was released on 2005 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Worker Productivity and Labor Supply written by Pedro Bessone Tepedino and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is a collection of essays exploring factors that affect developing country workers' productivity, well-being and labor supply. The first essay explores how workers labor supply is affected by transitory income shocks. In neoclassical models, transitory income shocks should not affect labor supply. This prediction has often been rejected empirically in favor of theories featuring reference-dependent preferences. We show that apparent negative daily income effects can be generated in a dynamic neoclassical model of labor supply by dynamic selection, where income early in the day causes differential attrition throughout workers' shifts. Using data from an RCT with rich experimental variation in income and fine measures of labor supply, we show that estimates of negative income effects are an artifact of dynamic selection in this setting, providing a neoclassical explanation to the findings of the income targeting literature.

Download or read book Handbook of Behavioral Economics Foundations and Applications 2 written by and published by Elsevier. This book was released on 2019-02-11 with total page 528 pages. Available in PDF, EPUB and Kindle. Book excerpt: Handbook of Behavioral Economics, Volume 2, Foundations and Applications offers critical perspectives on theoretical work within behavioral economics, delivering a comprehensive, critical, up-to-date, and accessible review of the field that has always been missing. This literature summary of the conceptual foundations underlying behavioral economics is written by, and for, economists, with chapters covering Intertemporal choice, Reference-dependent preferences, Beliefs, Cognition, Social preferences, Behavioral game theory, Welfare, and Neuroeconomics. Helps academic and non-academic economists understand recent rapid changes in theoretical advances within behavioral economics Designed for economists already convinced of the benefits of behavioral economics and mainstream economists who feel threatened by new developments in behavioral economics Written for those who wish to become quickly acquainted with behavioral economics

Download or read book Essays in Labor and Public Economics written by Samuel Nathan Dodini and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains three essays, each of which uses high-quality data and rigorous econometric methods to further our understanding of key questions in applied labor and public economics. Chapter 1 uses novel data from a sales company whose workers sell pest control services door to door to test for what is called in the behavioral economics literature "reference-dependent preferences." I show that sales workers select daily sales targets based on long-run goals to achieve bonuses paid by the firm at the end of the sales season. I then show that, contrary to standard theory of labor supply, workers substantially reduce their likelihood of continuing to work after achieving their daily sales target holding constant other factors of their work day. This behavior is consistent with loss aversion where workers put forth effort specifically to avoid underperforming relative to their expectations. The results support the theory that narrow goal setting and reference dependence together may act as a commitment device rather than representing a cognitive mistake as standard theory would suggest. These results have broad implications for how firms motivate their workers and show how long-run contract incentives can drive short-run labor supply choices. In Chapter 2, I exploit the 2014 rollout of provisions in the Affordable Care Act to identify the effects of direct subsidies for the purchase of private health insurance on adverse financial outcomes, consumer welfare, and outside parties. I use administrative tax data and credit bureau data to compare outcomes in areas that had high per-capita receipt of these premium tax credits to areas that had low per-capita receipt. To control for pre-treatment differences in trends attributable to the Great Recession, I use a propensity score reweighting and stratification procedure. I find that the premium tax credits substantially reduced the rates of severe mortgage delinquency, consumer bankruptcy, and severe auto delinquency as well as the right tail of the distribution of third-party collections and other debts. I also show that the value of the risk protections against medical debt amount to approximately 10-15% of the cash costs of the subsidies, while the subsidies provided substantial indirect benefits to mortgage lenders, creditors, and hospitals that amount to approximately two-thirds of the subsidy costs. Chapter 3, which is joint work with Michael Lovenheim and Alexander Willén, examines the dynamics of the decline in private-sector unionization rates in the United States over the past 40 years. We take a skill-based approach to studying this decline by accounting for changes in the types of skills covered by unions. We document that, from 1973 to 2017, private-sector unionized jobs shifted toward more non-routine, cognitive skills and fewer routine or manual skills and that women experienced a more pronounced change over this time period than men. After decomposing the changes in skills within the unionized sector to their components, we show that most of the change in unionized worker skills has been driven by the composition of occupations that are unionized rather than within-occupation skill changes. We show how these changes are compatible with a model of skill-biased technological change when we specifically account for the institutional framework surrounding collective bargaining and frictions to union certification or decertification. Finally, we show that accounting for different skills in the unionized sector leads to slightly larger estimates of the union wage premium than shown in the prior literature and that the wage premium remains relatively large for men and women at approximately 20% despite having fallen by over ten percentage points since its peak in the 1980s.

Download or read book The Foundations of Behavioral Economic Analysis written by Sanjit S. Dhami and published by Oxford University Press. This book was released on 2016 with total page 1799 pages. Available in PDF, EPUB and Kindle. Book excerpt: It considers the evidence against the exponential discounted utility model and describes several behavioral models such as hyperbolic discounting, attribute based models and the reference time theory. Part IV describes the evidence on classical game theory and considers several models of behavioral game theory, including level-k and cognitive hierarchy models, quantal response equilibrium, and psychological game theory. Part V considers behavioral models of learning that include evolutionary game theory, classical models of learning, experience weighted attraction model, learning direction theory, and stochastic social dynamics. Part VI studies the role of emotions; among other topics it considers projection bias, temptation preferences, happiness economics, and interaction between emotions and cognition. Part VII considers bounded rationality. The three main topics considered are judgment heuristics and biases, mental accounting, and behavioral finance.

Download or read book The Wiley Blackwell Handbook of Judgment and Decision Making 2 Volume Set written by Gideon Keren and published by John Wiley & Sons. This book was released on 2016-02-16 with total page 1056 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive, up-to-date examination of the most important theory, concepts, methodological approaches, and applications in the burgeoning field of judgment and decision making (JDM) Emphasizes the growth of JDM applications with chapters devoted to medical decision making, decision making and the law, consumer behavior, and more Addresses controversial topics from multiple perspectives – such as choice from description versus choice from experience – and contrasts between empirical methodologies employed in behavioral economics and psychology Brings together a multi-disciplinary group of contributors from across the social sciences, including psychology, economics, marketing, finance, public policy, sociology, and philosophy 2 Volumes