individual heterogeneity and cultural attitudes in credence goods provision abstract i study the heterogeneity of credence goods provision in taxi drivers taking detours in new york city first i document that there is significant detouring on average by drivers second there is significant heterogeneity in detouring across individuals yet each individual s propensity to take detours is stable drivers who detour almost always detour while those who do not detour almost never do drivers who take longer detours on each trip also take such trips more often third cultural attitudes plausibly explain some of this heterogeneity in behavior across individuals

competition under consumer loss aversion we address the effect of expectation based consumer loss aversion on firm strategy in imperfect competition consumers are fully informed about match value and price at the moment of purchase however some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match value and price distribution whereas others are perfectly informed all the time we show that if firms have symmetric costs a larger share of informed consumers leads to a more competitive outcome the reverse holds if cost asymmetry in duopoly is sufficiently large

on decisions that lead to decisions direct and derived evaluations of preference many consumer choices lead to subsequent decisions in such situations any choice option may be evaluated based on its own characteristics direct evaluations or evaluated based on the characteristics of alternatives it makes available in subsequent decisions derived evaluations we contrast direct and derived evaluations in the context of two consumer research issues first in choices between a lone option and a group of alternatives direct evaluations bias preferences toward the group whereas derived evaluations bias preferences away from the group second in choices between stores sensitivity to price is greater under derived than direct evaluations

an experimental examination of labor supply and work intensities estimated negative substitution effects on work hours question the empirical validity of the classical labor supply model estimates are reconciled by allowing a dual choice of hours and effort for piecerate workers in such a model these negative substitution effects result from substituting on and off the job leisure we test our model using controlled experimentation on human subjects these experiments while not naturally occurring environments represent real economic choices and can generate data unavailable elsewhere e g effort data the results support our model and they have implications both for labor management and for empirical research focusing only on the hours choice the classical static model of the labor leisure choice offers positive compensated wage effects on hours of work as its main testable implication previous attempts to test this hypothesis with field data have cast doubt on the empirical validity of the static labor supply model due to the frequency of negative estimated compensated wage elasticities a limitation of the model is that it views the choice of hours of work as the only

human capital inequality and economic growth some new evidence this paper provides new measures of human capital inequality for a broad panel of countries taking attainment levels from barro and lee 2001 we compute gini coefficients and the distribution of education by quintiles for 108 countries over five year intervals from 1960 to 2000 using this new cross country data on human capital inequality two main conclusions are obtained first most countries in the world have tended to reduce the inequality in human capital distribution second human capital inequality measures provide more robust results than income inequality measures in the estimation of standard growth and investment equations

the effect of payoff feedback and information pooling on reasoning errors evidence from experimental markets avast literature shows that individuals frequently violate normative principles in reasoning in this paper we report the results of four studies designed to determine if information dissemination in competitive auctions can reduce or even eliminate logical errors in the wason selection task our results show that payoff feedback and exposure to the information flow drive the aggregate behavior toward the normative solution we also found evidence of spillover effects from informed to uninformed traders in one sided combinatorial auctions as well as positive transfer effects from competitive to individual settings

reference dependent preferences and labor supply the case of new york city taxi drivers i develop a model of daily labor supply where preferences are dependent on a reference daily income level and i apply this model to data on the labor supply of new york city taxi drivers i find that there may be a reference level of income on a given day that affects labor supply however there is substantial day to day variation in a given driver s reference level and most shifts end before reaching the reference income level this pattern is inconsistent with an important role for reference dependent preferences

correlates of narrow bracketing we examine whether different phenomena of narrow bracketing can be traced back to some common characteristic and whether and how different phenomena are related we find that making dominated lottery choices or ignoring the endowment when making risky choices are related phenomena and are both associated with low levels of cognitive reflection in contrast the phenomena of setting narrow goals or narrow mental budgets seem not to reflect choice errors due to low cognitive reflection but are tools to overcome self control problems buying small scale insurance is associated with having narrow mental budgets suggesting that people buy such insurance to insure themselves against the consequences of their own self control strategy

effects of household shocks on risk preferences and loss aversion evidence from upland smallholders of south east asia avoiding risk in financial decisions is credited to be a key contributor to persistent poverty and poverty traps in spite of this the methods used to measure behaviour under risk rarely reflect a

ambiguous incentives and the persistence of effort experimental evidence abstract when the assignment of incentives is uncertain we study how the regularity and frequency of rewards and risk attitudes influence participation and effort we contrast three incentive schemes in a real effort experiment in which individuals decide when to quit a continuous incentive scheme and two intermittent ones fixed and random in all treatments we introduce a regime shift by withdrawing monetary rewards after the same unknown number of periods in such an ambiguous environment we show that less able and more risk averse players are less persistent in effort intermittent incentives lead to a greater persistence of effort while continuous incentives entail exit as soon as payment stops randomness increases both earlier and later exiting this selection effect in terms of ability and risk attitudes combined with the impact of intermittent rewards on persistence lead to an increase in mean performance after the regime shift when incentives are intermittent

lagged beliefs and reference dependent utility abstract models of expectation based reference dependent preferences proposes that the reference point to which consumption outcomes are compared is endogenously determined as a function of lagged probabilistic beliefs this paper presents an experiment designed to test some predictions of expectation based reference dependence models the design induces a stochastic reference point via a lottery and then measures valuations for a commodity the experimental results find no effect of the first stage lottery on commodity valuation

salient compromises in the newsvendor game abstract the newsvendor problem denotes the puzzle that a retailer facing an uncertain demand for some product underreacts to profit margins and hence adjusts the order quantity toward the expected demand due to its range of applications in operations management this problem has drawn much interest in recent years various articles have tried to reconcile the newsvendor problem with loss aversion under ad hoc assumptions on the underlying reference point we instead argue that the newsvendor problem is an application of the well studied compromise effect as the compromise effect is based on violations of the iia axiom we argue that models of context dependent behavior such as salience theory better explain newsvendor like behavior than loss aversion based models we conduct a novel experiment which allows us to clearly distinguish between the role of loss aversion and salience and find strong support for the latter thereby we also add to the agenda of comparing loss aversion based models and salience theory

students perceptions of teacher biases experimental economics in schools we put forward a new experimental economics design with monetary incentives to estimate students perceptions of grading discrimination we use this design in a large field experiment which involved 1 200 british students in grade 8 classrooms across 29 schools in this design students are given an endowment they can invest on a task where payoff depends on performance the task is a written verbal test which is graded non anonymously by their teacher in a random half of the classrooms and graded anonymously by an external examiner in the other random half of the classrooms we find significant evidence that students choices reflect perceptions of biases in teachers grading practices our results show systematic gender interaction effects male students invest less with female teachers than with male teachers while female students invest more with male teachers than with female teachers interestingly female students perceptions are not in line with actual discrimination teachers tend to give better grades to students of their own gender results do not suggest that ethnicity and socioeconomic status play a role

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

an examination of firms employment costs the existence of quasi fixed costs of work may affect firms desired employee hours and number of workers which has important implications for the estimation of labour supply parameters firm level data from the 1982 employment opportunity pilot project is used to estimate the importance to firms of employee quasi fixed costs related to searching hiring training and firing specifically this paper examines how these costs affect number of workers and hours per worker turnover and vacancies to the extent that the costs are determined by the firm s presumably exogenous industrial classification an attempt is made to control for biases due to employee heterogeneity as well results show that higher costs are associated with lower turnover fewer vacancies and longer hours as predicted by a model of labour demand

the labor supply response to mismeasured but predictable wage changes most panel data studies of intertemporal labor supply assume classical measurement error recent validation studies refute this assumption in this study i address nonclassical measurement error explicitly i use data on males from the panel study of income dynamics validation study to purge measurement error from the panel study of income dynamics i find a large amount of predictable wage variation in the data even after allowing for measurement error however there is almost no labor supply response to these predictable wage changes therefore failure to control for nonclassical measurement error cannot explain the low estimated labor supply elasticities in other papers

high powered performance pay and crowding out of nonmonetary motives a previous literature cautions that paying workers for performance might crowd out nonmonetary motives to work hard empirical evidence from the field however has been based on between subjects designs that are best suited for detecting crowding out due to low powered incentives high powered incentives in the workplace tend to increase output but it is unknown whether this masks crowding out this paper uses a within subject experimental design and finds evidence that crowding out also extends to high powered incentives in a real work setting with paid workers there is individual heterogeneity however with a minority of workers reporting crowding in of motivation thus the impact of performance pay might depend on the mix of worker types data and the online appendix are available at https doi org 10 1287 mnsc 2017 2846 this paper was accepted by uri gneezy behavioral economics

modeling loss aversion and reference dependence effects on brand choice based upon a recently developed multiattribute generalization of prospect theory s value function tversky and kahneman 1991 we argue that consumer choice is influenced by the position of brands relative to multiattribute reference points and that consumers weigh losses from a reference point more than equivalent sized gains loss aversion we sketch implications of this model for understanding brand choice we develop a multinomial logit formulation of a reference dependent choice model calibrating it using scanner data in addition to providing better fit in both estimation and forecast periods than a standard multinomial logit model the model s coefficients demonstrate significant loss aversion as hypothesized we also discuss the implications of a reference dependent view of consumer choice for modeling brand choice demonstrate that loss aversion can account for asymmetric responses to changes in product characteristics and examine other implications for competitive strategy

an endowment effect for risk experimental tests of stochastic reference points recent models of reference dependent preferences indicate that expectations may play a prominent role in the presence of behavioral anomalies a subset of such expectations based models predicts an endowment effect for risk that risk attitudes differ when reference points change from certain to stochastic in two purposefully simple risk preference experiments eliminating often discussed confounds i demonstrate both between and within subjects such an endowment effect for risk these results provide needed separation between expectations based reference dependent models allow for evaluation of recent theoretical extensions and may help to close a long standing debate in decision science on inconsistency between utility elicitation methodologies

loss aversion and labor supply in many occupations workers labor supply choices are constrained by institutional rules regulating labor time and effort provision this renders explicit tests of the neoclassical theory of labor supply difficult here we present evidence from studies examining labor supply responses in neoclassical environments in which workers are free to choose when and how much to work despite the favorable environment the results cast doubt on the neoclassical model they are however consistent with a model of reference dependent preferences exhibiting loss aversion and diminishing sensitivity jel j22 b49

gift giving and worker productivity evidence from a firm level experiment abstract we present results from a field experiment designed to measure worker response to a monetary gift from their employer the experiment took place inside a tree planting firm paying its workforce incentive contracts firm managers told a crew of tree planters they would receive a pay raise for one day as a result of a surplus not attributable to past planting productivity we compare planter productivity the number of trees planted per day on the day the gift was handed out with productivity on previous and subsequent days of planting on the same block and thus under similar planting conditions we find direct evidence that the gift had a significant and positive effect on daily planter productivity controlling for planter fixed effects weather conditions and other random daily shocks

the effect of myopia and loss aversion on risk taking an experimental test myopic loss aversion is the combination of a greater sensitivity to losses than to gains and a tendency to evaluate outcomes frequently two implications of myopic loss aversion are tested experimentally 1 investors who display myopic loss aversion will be more willing to accept risks if they evaluate their investments less often 2 if all payoffs are increased enough to eliminate losses investors will accept more risk in a task in which investors learn from experience both predictions are supported the investors who got the most frequent feedback and thus the most information took the least risk and earned the least money language en

the new economic case for migration restrictions an assessment abstract migration barriers tend to reduce global production by impeding efficient spatial reallocation of labor recent research argues for a countervailing effect of barriers tending to raise global production by preventing the spread of impoverishing institutions from poor to rich countries while evidence of this mechanism is scarce it is theoretically plausible at high migration rates we propose and calibrate a simple model of dynamically efficient migration when migrants spread economic institutions between countries the net effect of migration depends on three parameters transmission the degree to which origin country total factor productivity is embodied in migrants assimilation the degree to which migrants productivity determinants become like natives over time in the host country and congestion the degree to which transmission and assimilation change at higher migrant stocks on current evidence about the magnitudes of these parameters dynamically efficient policy would not imply open borders but would imply relaxation of current restrictions

what drives taxi drivers a field experiment on fraud in a market for credence goods credence goods are characterized by informational a symmetries between sellers and consumers that invite fraudulent behavior by seller s this paper presents the results of a natural field experiment on taxi rides in athens g reece set up to measure different types of fraud and to examine the influence of passengers p resumed information and income on the extent of fraud results reveal that taxi drivers c heat passengers in systematic ways passengers with inferior information about optimal routes are taken on longer detours while asymmetric information on the local tariff system l eads to manipulated bills higher income seems to lead to more fraud

multiattribute loss aversion and reference dependence evidence from the performing arts industry we study the prevalence of multiattribute loss aversion and reference effects in a revenue management setting based on data of individual level purchases over a series of concert performances the reference dependence that drives consumer choice is not only based on the price but also on observed sales as a fraction of the seating capacity during their past visits we find that consumers suffer from loss aversion on both prices and seats sold consumers incur significant utility loss when prices are above their references or when the actual seat sales are lower than their references we suggest pricing policies that can address consumer decisions driven by such reference dependence and loss aversion this paper was accepted by vishal gaur operations management

an experiment on risk taking and evaluation periods does the period over which individuals evaluate outcomes influence their investment in risky assets results from this study show that the more frequently returns are evaluated the more risk averse investors will be the results are in line with the behavioral hypothesis of myopic loss aversion which assumes that people are myopic in evaluating outcomes over time and are more sensitive to losses than to gains the results have relevance for the equity premium puzzle and also for the marketing strategies of fund managers

in search of workers real effort reciprocity a field and a laboratory experiment we present a field experiment to assess the effect of own and peer wage variations on actual work effort of employees with hourly wages work effort neither reacts to an increase of the own wage nor to a positive or negative peer comparison this result seems at odds with numerous laboratory experiments that show a clear own wage sensitivity on effort in an additional real effort laboratory experiment we show that explicit cost and surplus information that enables an exact calculation of an employer s surplus from the work contract is a crucial prerequisite for a positive wage effort relation this demonstrates that an employee s reciprocity requires a clear assessment of the surplus at stake jel c91 c92 j41

economic exposure and integrated risk management most corporate risk management research focuses on particular risk exposures to the exclusion of other interrelated exposures by contrast this study models corporate risk exposures using a multivariate approach integrating the distinct exposures of interest to finance international business and strategy researchers the paper addresses the implications of multivariate modeling for corporate risk management some key methodological issues arising in empirical estimation of corporate economic exposures and directions for research on integrated risk management 1998 john wiley sons ltd

contract preferences and performance for the loss averse supplier buyback vs revenue sharing prior theory claims that buyback and revenue sharing contracts achieve equivalent channel coordinating solutions when applied in a dyadic supplier retailer setting this suggests that a supplier should be indifferent between the two contracts however the sequence and magnitude of costs and revenues i e losses and gains vary significantly between the contracts suggesting the supplier s preference of contract type and associated contract parameter values may vary with the level of loss aversion we investigate this phenomenon through two studies the first is a preliminary study investigating whether human suppliers are indeed indifferent between these two contracts using a controlled laboratory experiment with human subjects taking on the role of the supplier having to choose between contracts we find that contract preferences change with the ratio of overage and underage costs for the channel i e the newsvendor critical ratio in particular a buyback contract is preferred for products wit

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

what do fishermen tell us that taxi drivers do not an empirical investigation of labor supply recent empirical findings have cast doubt on the neoclassical model of labor supply however estimation issues and not workers behavior may be responsible for these findings this paper investigates this possibility by examining the daily labor supply of florida lobster fishermen i invariably find that fishermen work more when earnings are temporarily high behavior that is consistent with a neoclassical model of labor supply furthermore methods that do not control for measurement error and endogeneity of the wage not only produce downward biased estimates of labor supply elasticities but also generate a spurious negative and significant elasticity of daily hours

goal setting and self control abstract this paper addresses the role of non binding goals to attenuate time inconsistency present biased agents have linear reference dependent preferences and endogenously set a goal that is the reference point they face an infinite horizon optimal stopping problem in continuous time when there is sufficient commitment to expectation based goals goal setting attenuates the present biased agent s tendency to stop too early and may even lead an agent to wait longer than the first best in particular reference dependence is strictly worse for a time consistent agent notably none of the effects of goal setting require loss aversion

new york city cab drivers labor supply revisited reference dependent preferences with rational expectations targets for hours and income this paper reconsiders whether cabdrivers labor supply decisions reflect reference dependent preferences following botond koszegi and matthew rabin 2006 we construct a model with targets for hours as well as income both determined by rational expectations estimating using henry s farber s 2005 2008 data we show that the reference dependent model can reconcile his 2005 finding that drivers stopping probabilities are significantly related to hours but not income with the negative wage elasticity of hours found by colin camerer et al 1997 and farber 2005 2008 the model yields sensible estimates that avoid farber s 2008 criticism that drivers income targets are too unstable to allow a useful reference dependent model of labor supply

are long term wage elasticities of labor supply more negative than short term ones standard models imply that the wage elasticity of labor supply is more negative the longer a wage change lasts i observe decreasing daily hours during short term wage increases but not during a long term one daily income goals adjusted in the long term

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

perfect competition or the core abstract the general concepts final settlement and competition defined by edgeworth 1881 are redefined in a modern setting the special application exchange equilibrium is compared to the later concept the core the history of exchange equilibrium is surveyed

optimal decisions for the loss averse newsvendor problem under cvar abstract most of the existing literature about the newsvendor problem mainly focused on choosing an optimal order quantity to maximize the expected profit of a risk neutral newsvendor however some studies pointed out that in practice managers decisions as to order quantities always deviate from the profit maximization order quantity which is referred to as decision bias in the newsvendor problem then many studies introduced other preferences rather than risk neutrality of the newsvendor to explain such a decision bias this paper thus introduces loss aversion to the research of the newsvendor decision bias we propose a new definition to the loss averse newsvendor problem legacy loss which is defined either as the loss for excess order or the shortage penalty for lost sales when sales time is due the optimal decisions of a loss averse newsvendor are obtained through the following three ways i minimizing the expected legacy loss ii minimizing cvar of legacy loss by combining the cvar measure in risk management iii minimizing the combination of expected legacy loss and cvar of legacy loss and are compared with other existing results besides we present some properties of the optimal decisions as well as relations among them some numerical examples are given to illustrate the obtained results

is roger federer more loss averse than serena williams using data from the high stakes 2013 dubai professional tennis tournament we find that compared with a tied score i male players have a higher serve speed and thus exhibit more effort when behind in score and their serve speeds get less sensitive to losses or gains when score difference gets too large and ii female players do not change their serve speed when behind while serving slower when ahead thus male players comply more with prospect theory exhibiting more loss aversion and reflection effect our results are robust to controlling for player fixed effects and characteristics with player random effects

rational expectations and loss aversion potential output and welfare implications abstract we add some elements of prospect theory to an analytically tractable version of lucas s islands model and show that the inclusion of reference dependence declining sensitivity and loss aversion into the agents utility function leads to four main results first the presence of behavioral elements negatively affects the natural level of output second loss aversion reduces output variance third the expected utility of a representative agent is generally lower than that obtained when loss aversion is absent fourth the presence of loss aversion eliminates the paradoxical increase in expected utility that may be generated in the standard model by an increase in monetary policy uncertainty

time to change what to sow risk preferences and technology adoption decisions of cotton farmers in china this paper examines the role of individual risk attitudes in the decision to adopt a new form of agricultural biotechnology in china i conducted a survey and a field experiment to elicit the risk preferences of chinese farmers who faced the decision of whether to adopt genetically modified bt cotton a decade ago in my analysis i expand the measurement of risk preferences beyond expected utility theory to incorporate prospect theory i find that farmers who are more risk averse or more loss averse adopt bt cotton later farmers who overweight small probabilities adopt bt cotton earlier

relative pay and labor supply we examine the impact of relative wages on labor supply in a laboratory experiment we test the hypothesis that ceteris paribus making a given wage high low relative to other wage levels will lead to an increase decrease in labor supply we find that labor supply does respond significantly to relative pay and in the expected direction however when a strong enough reason for the relative low pay is given this difference disappears

reference dependent behaviour of paua abalone divers in new zealand we study dynamic labour supply using data on paua abalone divers in new zealand the divers face stable flat prices per kilogram after each catch but experience transitory wage changes due to varying weather and water conditions and are free to vary their daily working hours and display an intermittent working pattern we find nonlinear wage elasticities rejecting the standard neo classical prediction that these divers should work long hours during days when wages are high and quit early during days when hourly wages are low we explore potentially distorting factors but find little evidence applying k szegi and rabin s 2006 theory where workers have both income and hours targets could explain our result in particular our divers appear to be primarily guided by the hours target

are commercial fishers risk lovers fishers are risk averse according to most empirical studies while expected utility theory predicts risk neutrality even for sizable stakes we test this prediction using data from a stated choice experiment with swedish commercial fishers our results show that only 48 of the fishers can be broadly characterized as risk neutral while 26 are modestly risk averse and 26 are strongly riskaverse fishers are more risk neutral the higher the fraction of their household s income comes from fishing sensitivity testing implies that modest stake decisions like a few days of fishing are not influenced by wealth level

economic targets and loss aversion in international environmental cooperation economic targets in environmental coopeartion in the standard emission problem each country s ruling party decides on an optimal level of emissions by analyzing the cost and benefit to the country however such policy decisions are often influenced by political parties incentives to be elected voters tend to give higher priority to economic issues than they do to environmental ones as a result political parties have additional incentives to reach a critical economic benefit level at a cost of higher emission level in order to satisfy voters expectations in economic issues therefore this study explores the implications of political parties being averse to insufficient economic performance relative to a critical economic target level on sustaining an international environmental agreement on emission levels in doing so we allow countries to have asymmetric concerns about economic targets as well as asymmetric technology levels we find that stronger concerns about economic targets deter the most cooperative emission levels countries could jointly sustain furthermore technological asymmetry could either deepen or offset this impact these results suggest that efforts on achieving substantial international environmental agreements should be supported at the citizen level to eliminate the adverse effects

fiscal year ends and nonlinear incentive contracts the effect on business seasonality salesperson and executive compensation contracts typically specify a nonlinear relationship between firm revenues and pay these agents therefore have incentive to manipulate prices influence the timing of customer purchases and vary effort over their firms fiscal years this paper empirically establishes results consistent with agents focusing on performance over the fiscal year most notably in addition to varying with the calendar business cycle manufacturing firms sales are higher at the end of the fiscal year and lower at the beginning than they are in the middle further evidence is found in fiscal year price movements and patterns in the industry variation of fiscal year effects

goal setting and energy conservation abstract this paper develops a theoretical model of consumer demand for an energy conservation program that involves non binding self set goals we present evidence from a northern illinois goal setting program aimed at reducing residential electricity consumption which is difficult to reconcile with standard preferences and is broadly consistent with a model of present biased consumers with reference dependent preferences we find that the need for commitment is correlated with program adoption higher pre adoption consumption and lower responsiveness to goals consumers choosing realistic goals persistently save substantially more achieving savings of nearly 11 than those choosing very low or unrealistically high goals

here comes the rain again weather and the intertemporal substitution of leisure i revisit the intertemporal labor supply framework using exogenous variations in daily weather to see how time at work varies with rain in my model a rainy day is associated with a lower enjoyment of leisure effectively increasing wages and bringing more hours at work i test the model using data from the american time use survey supplemented with daily weather i find that on rainy days men shift on average 30 minutes from leisure to work computations give a rough estimate of the intertemporal elasticity of labor supply of around 0 01 in line with the rest of the literature

the disposition effect in securities trading an experimental analysis the disposition effect is the tendency to sell assets that have gained value winners and keep assets that have lost value losers disposition effects can be explained by the two features of prospect theory the idea that people value gains and losses relative to a reference point the initial purchase price of shares and the tendency to seek risk when faced with possible losses and avoid risk when a certain gain is possible our experiments were designed to see if subjects would exhibit disposition effects subjects bought and sold shares in six risky assets asset prices fluctuated in each period contrary to bayesian optimization subjects did tend to sell winners and keep losers when the shares were automatically sold after each period the disposition effect was greatly reduced

do people anticipate loss aversion there is growing interest in the use of loss contracts that offer performance incentives as up front payments that employees can lose standard behavioral models predict a trade off in the use of loss contracts employees will work harder under loss contracts than under gain contracts but anticipating loss aversion they will prefer gain contracts to loss contracts in a series of experiments we test these predictions by measuring performance and preferences for payoff equivalent gain and loss contracts we find that people indeed work harder under loss than gain contracts as the theory predicts surprisingly rather than a preference for the gain contract we find that people actually prefer loss contracts in exploring mechanisms for our results we find suggestive evidence that people do anticipate loss aversion but select into loss contracts as a commitment device to improve performance using one bias loss aversion to address another dynamic inconsistency data as supplemental material are a

labor supply of new york city cabdrivers one day at a time life cycle models of labor supply predict a positive relationship between hours supplied and transitory changes in wages because such changes have virtually no effect on life cycle wealth previous attempts to test this hypothesis empirically with time series data have not been supportive estimated elasticities are typically negative or nonsignificant such analyses however are vulnerable to measurement error and other estimation problems we use data on daily observations of wages and hours for new york city cab drivers to estimate the supply response to transitory fluctuations in wages cab drivers decide daily how many hours to supply and face wages that are positively correlated within days but largely uncorrelated between days using these data our central finding is that wage elasticities are persistently negative from 5 to 1 in three different samples even after correcting for measurement error using instrumental variables these negative wage elasticities challenge the notion that cab drivers trade off labor and leisure at different points in time and question the empirical adequacy of life cycle formulations of labor supply

reference dependent job search evidence from hungary we propose a model of job search with reference dependent preferences with loss aversion relative to recent income the reference point in this model newly unemployed individuals search hard since consumption is below their reference point over time though they get used to lower income and thus reduce their search effort in anticipation of a benefit cut their search effort rises again then declines once they get accustomed to the lower postcut benefit level the model fits the typical pattern of exit from unemployment even with no unobserved heterogeneity to distinguish between this and other models we use a unique reform in the unemployment insurance ui benefit path in 2005 hungary switched from a single step ui system to a two step system with overall generosity unchanged the system generated increased hazard rates in anticipation of and especially following benefit cuts in ways the standard model has a hard time explaining we estimate a model with optimal consumption endogenous search effort and unobserved heterogeneity the reference dependent model fits the hazard rates substantially better than plausible versions of the standard model including habit formation our estimates indicate a slow adjusting reference point and substantial impatience likely reflecting present bias jel codes d03 j64 j65

your loss is my gain a recruitment experiment with framed incentives empirically labor contracts that financially penalize failure induce higher effort provision than economically identical contracts presented as paying a bonus for success an effect attributed to loss aversion this is puzzling as penalties are infrequently used in practice the most obvious explanation is selection loss averse agents are unwilling to accept such contracts i formalize this intuition then run an experiment to test it surprisingly i find that workers were 25 percent more likely to accept penalty contracts with no evidence of adverse or advantageous selection consistent with the existing literature penalty contracts also increased performance on the job by 0 2 standard deviations i outline extensions to the basic theory that are consistent with the main results but argue that more research is needed on the long term effects of penalty contracts if we want to understand why firms seem unwilling to use them

a model of mental accounting and reference price adaptation consumers possess a mental account that stores the worth of items purchased and yet to be consumed reference prices act as the book values of these items movements in the account the comparison between the reference price and the price paid at entry and the comparison between the benefit of consumption and the reference price at exit yield hedonic benefits the reference price is determined by a psychological process of adaptation to the price evoked by the trade the model is integrative in that it explains a wide array of observed anomalies such as sunk cost effects payment depreciation reluctance to trade preference for prepayment and the flat rate bias the model also generates new testable implications this paper was accepted by james smith decision analysis

the fun and function of uncertainty uncertain incentives reinforce repetition decisions this research studies repetition decisions namely whether to repeat a behavior e g a purchase after receiving an incentive e g a discount can uncertainty drive repetition four experiments all involving real consequences for each individual participant document a counterintuitive reinforcing uncertainty effect individuals repeat a behavior more if its incentive is uncertain than if it is certain even when the certain incentive is financially better this effect is robust it holds in both lab and field settings and at both small and large magnitudes furthermore the experiments identify two theory driven boundary conditions for the reinforcing uncertainty effect the effect arises a only if the uncertainty is resolved immediately and not if the resolution of uncertainty is delayed and b only after not before one has engaged in repetitions these results support a resolution as reward account and cast doubt on other explanations such as reference dependent preferences this research reveals the hidden value of uncertain incentives and sheds light on the delicate relationship between incentive uncertainty and repetition decisions

can losing lead to winning individuals groups and teams who are behind their opponents in competition tend to be more likely to lose in contrast we show that through increasing motivation being slightly behind can actually increase success analysis of more than 18 000 professional basketball games illustrates that being slightly behind at halftime leads to a discontinuous increase in winning percentage teams behind by a point at halftime for example actually win more often than teams ahead by one or approximately six percentage points more often than expected this psychological effect is roughly half the size of the proverbial home team advantage analysis of more than 45 000 collegiate basketball games finds consistent though smaller results experiments corroborate the field data and generalize their findings providing direct causal evidence that being slightly behind increases effort and casting doubt on alternative explanations for the results taken together these findings illustrate that losing can sometimes lead to winning this paper was accepted by peter wakker decision analysis

loss aversion under prospect theory a parameter free measurement agrowing body of qualitative evidence shows that loss aversion a phenomenon formalized in prospect theory can explain a variety of field and experimental data quantifications of loss aversion are however hindered by the absence of a general preference based method to elicit the utility for gains and losses simultaneously this paper proposes such a method and uses it to measure loss aversion in an experimental study without making any parametric assumptions thus it is the first to obtain a parameter free elicitation of prospect theory s utility function on the whole domain our method also provides an efficient way to elicit utility midpoints which are important in axiomatizations of utility several definitions of loss aversion have been put forward in the literature according to most definitions we find strong evidence of loss aversion at both the aggregate and the individual level the degree of loss aversion varies with the definition used which underlines the need for a commonly accepted definition of loss aversion