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

when to quit narrow bracketing and reference dependence in taxi drivers abstract taxi drivers provide an ideal setting for testing various models of labor supply despite this the literature studying driver behavior has produced mixed evidence of which labor supply model best applies to driver labor supply using a novel analysis and large datasets of taxi trips from two different cities this paper provides a unifying analysis which reconciles previous inconsistencies in evidence for reference dependence in taxi drivers by testing for a particular non linear relationship between shift income and drivers hazard of stopping i identify behavior that is consistent with prospect theoretic s shaped reference dependence as opposed to the more extensively examined loss aversion model of reference dependence this particular model of reference dependence in this setting allows me to estimate individual driver reference points without an explicit functional form or ex ante assumptions about the existence of a reference point

is tiger woods loss averse persistent bias in the face of experience competition and high stakes although experimental studies have documented systematic decision errors many leading scholars believe that experience competition and large stakes will reliably extinguish biases we test for the presence of a fundamental bias loss aversion in a high stakes context professional golfers performance on the pga tour golf provides a natural setting to test for loss aversion because golfers are rewarded for the total number of strokes they take during a tournament yet each individual hole has a salient reference point par we analyze over 2 5 million putts using precise laser measurements and find evidence that even the best golfers including tiger woods show evidence of loss aversion jel d03 d81 l83

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

a shred of credible evidence on the long run elasticity of labor supply all public policies regarding taxation and the redistribution of income rely on assumptions about the long run effect of wages rates on labour supply the variation in existing estimates calls for a simple natural experiment in which men can change their hours of work and in which wages have been exogenously and permanently changed we use a panel dataset of taxi drivers who choose their own hours and who experienced two exogenous permanent fare increases and estimate an elasticity of labour supply of 0 2 implying that income effects dominate substitution effects in the long run labour supply of males

the effect of wage subsidies on piece rate workers evidence from the penny per pound program in florida abstract this paper studies a fair trade program in which consumers provide a wage subsidy bonus to piece rate tomato pickers the total subsidy determined by sales to participating buyers is divided among workers based on their relative output a worker who produces more gets a larger share of the bonus although seemingly mimicking the existing piece rate pay scheme the mechanism associated with the bonus payment is really a relative performance evaluation as the size of total bonus is exogenous and invariant to workers effort therefore for a given sized subsidy the combined total or per worker average utility gains would become the largest if the workers keep their efforts at the pre program level empirical analysis shows that worker effort and hence productivity increases substantially in response to the program suggesting that currently workers combined gains per dollar of subsidy are not being maximized

an empirical analysis of the daily labor supply of stadium venors this paper analyzes the daily labor supply behavior of food and beverage vendors at a single stadium over an entire baseball season this labor market is attractive for the study of labor supply both because ofvendors unilateraly decide whether to participate on each game date and because canges in product demand conditions across days are large and highly predictable generating exogenous game to game variation in the vendor wage i exploit the observable shift in product demand conditions across games to esumate the labor supply participation elasticity of stadium vendors estimates that recognize that demand conditions and vendor labor supply decisions simultancously determine the venofdor wage always find substantial labor supply elasticities typically in the 55 65 range in contract estimates that ignore the endoreneity of the ties these results highlight the imporatance of using demand shift markets

how many pears would a pear packer pack if a pear packer could pack pears at quasi exogenously varying piece rates abstract we examine labor supply using a unique dataset collected from a large pear packing factory pear packers face both expected and unexpected shocks to their wages and we use this to evaluate different models of inter temporal labor supply we find strong evidence for reference dependent preferences but only mixed support for models of rational expectations based targets

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

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

asset integration and attitudes to risk theory and evidence measures of risk attitudes derived from experiments are often questioned because they are based on small stakes bets and do not account for the extent to which the decision maker integrates the prizes of the experimental tasks with personal wealth we exploit the existence of detailed information on individual wealth of experimental subjects in denmark and directly estimate risk attitudes and the degree of asset integration consistent with observed behavior the behavior of the adult danes in our experiments is consistent with partial asset integration they behave as if some small fraction of personal wealth is combined with experimental prizes in a utility function and that this combination entails less than perfect substitution our subjects do not perfectly asset integrate the implied risk attitudes from estimating these specifications imply risk premia and certainty equivalents that are a priori plausible under expected utility theory or rank dependent utility models these are reassuring and constructive solutions to payoff calibration paradoxes in addition the rigorous structural modeling of partial asset integration points to a rich array of neglected questions in risk management and policy evaluation in important field settings

recover overnight work interruption and worker productivity this paper investigates the effect of work interruption on workers subsequent productivity we employ a data set of individual productivity and machine conditions in which each worker faces the chance on a daily basis that her machine will break down randomly our analysis finds that compared to a workday with smooth production experiencing a machine breakdown is associated with a 3 3 percentage point decline in the worker s productivity the following day we discuss possible explanations for the observed effect including negative emotions increased cautiousness in operating the machine and proficiency loss our findings shed light on the importance of understanding and managing interruptions in the workplace and contribute to a growing literature on the determinants of productivity at the micro level data and the online appendix are available at https doi org 10 1287 mnsc 2017 2792 this paper was accepted by john list behavioral economics

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

productivity in piece rate labor markets evidence from rural malawi abstract piece rate compensation is a common feature of developing country labor markets but little is known about how piece rate workers respond to incentives or the tradeoffs that an employer faces when setting the terms of the contract in a field experiment in rural malawi we hired casual day laborers at piece rates and collected detailed data on the quantity and quality of their output specifically we use a simplified becker degroot marschak mechanism which provides random variation in piece rates conditional on revealed reservation rates to separately identify the effects of worker selection and incentives on output we find a positive relationship between output quantity and the piece rate and show that this is solely the result of the incentive effect not selection in addition we randomized whether workers were subject to stringent quality monitoring monitoring led to higher quality output at some cost to the quantity produced however workers do not demand higher compensation when monitored and monitoring has no measurable effect on the quality of workers willing to work under a given piece rate together the set of worker responses that we document lead the employer to prefer a contract that offers little surplus to the worker consistent with an equilibrium in which workers have little bargaining power

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

whose preferences are revealed in hours of work it has become orthodox in economics research to interpret the association between hourly earnings and working hours as the expression of the preferences of workers this convention originated in h gregg lewis explanation for the decline in hours of work since the nineteenth century his explanation rested on an explicit resolution of the identification problem inherent in any quantity hours price wage relation for over 40 years researchers have neglected this identification problem with the result that the findings in the purported labor supply literature are of questionable value jel j22 j23 c13

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

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

does labor supply respond to transitory income evidence from the economic stimulus payments of 2008 this paper studies labor supply responses to transitory income exploiting the differential timing of the 2008 tax rebates while an influential literature finds that rebates encourage consumer spe

a quantitative analysis of china s structural transformation abstract the structural transformation of china or the reallocation of resources from the agricultural sector to the nonagricultural sector between 1978 and 2003 was truly remarkable we develop a two sector neoclassical growth model to quantitatively assess the driving forces of china s recent structural transformation in addition to the forces currently emphasized in the literature sectoral productivity growth we show that china s transformation was accelerated significantly by the gradual reduction in the relative size of the chinese government we find that the reduction in the size of the chinese government accounted by itself for 15 of the reduction in the agricultural share of employment two mechanisms explain this i in our model the lower tax rate associated with reduced intervention encouraged the accumulation of physical capital which is produced in the nonagricultural sector ii lower inefficiencies induced incomes to rise and given our preferences resulted in a disproportionate increase in the demand for the nonagricultural good

drivers of disruption estimating the uber effect abstract a frequent belief is that the rise of so called gig work has led to the displacement of workers in a wide range of traditional jobs this paper examines the impacts of the flagship of the gig economy uber on workers employed in conventional taxi services our analysis exploits newly collected data on the staggered rollout of uber across metropolitan areas in the united states and a difference in differences design to document that incumbent taxi drivers experienced a relative earnings decline of about 10 percent subsequent to uber s entry into a new market while there are no significant effects on their labor supply additional evidence from a battery of placebo tests event study estimates and specifications using google trends data to capture differences in treatment intensity underlines these findings a triple differences design that compares changes among taxi drivers relative to bus tractor and truck drivers that were unaffected by the arrival of uber provides further supporting evidence that the diffusion of uber has reduced the earnings potential of incumbent drivers in conventional taxi services in the united states

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

is tomorrow another day the labor supply of new york city cabdrivers the labor supply of taxi drivers is consistent with the existence of intertemporal substitution my analysis of the stopping behavior of new york city cabdrivers shows that daily income effects are small and that the decision to stop work at a particular point on a given day is primarily related to cumulative daily hours to that point this is in contrast to the analysis of camerer et al who find that the daily wage elasticity of labor supply of new york city cabdrivers is substantially negative implying large daily income effects this difference in findings is due to important differences in empirical methods and to problems with the conception and measurement of the daily wage rate used by camerer et al

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

labor supply preferences hours constraints and hours wage tradeoffs in a labor market with tied hours wage packages and wage dispersion for a particular type of job constrained workers may be willing to sacrifice wage gains for better hours when changing jobs likewise workers may accept jobs offering undesirable hours only if the associated wage gains are large we investigate this issue empirically by examining whether overemployment and underemployment on the initial and new job affects the relation between hours changes and wage changes for quitters our results generally support the view that an individual requires compensation to work in a job that given the individual s particular preferences offers unattractive hours

income targeting and farm labor supply there is considerable anecdotal evidence that farm workers who are paid by piece rate tend to income target or work only until they achieve a certain amount of daily income and then stop work we estimate reduced form and structural models derived from the reference dependent preference model of koszegi and rabin 2006 to test the income targeting hypothesis using data from the national agricultural workers survey naws we find evidence that supports the income targeting hypothesis in both the reduced form and structural econometric models our findings suggest that even higher piece rates may not help the widely reported shortage of agricultural labor on the intensive margin as labor supply curves can be backward bending

excess capacity in a fixed cost economy abstract this paper proposes a new mechanism that can explain persistent economic slack the theory shows that when producers face negligible marginal costs and desired spending is below the economy s capacity the economy features slack in equilibrium even when prices are flexible and there are no other frictions a heterogeneous household version of the model demonstrates how an economy can enter a capacity trap in response to a temporary negative demand shock when demand by some consumers falls temporarily other consumers permanent income and hence their desired consumption also falls since output is determined by demand the permanent fall in desired consumption causes a permanent state of excess capacity

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

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

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

expectations as reference points field evidence from professional soccer we show that professional soccer players and their coaches exhibit reference dependent behavior during matches controlling for the state of the match and for unobserved heterogeneity we show on a minute by minute basis that players breach the rules of the game measured by the referee s assignment of cards significantly more often if their teams are behind the expected match outcome measured by preplay betting odds of large professional bookmakers we further show that coaches implement significantly more offensive substitutions if their teams are behind expectations both types of behaviors impair the expected ultimate match outcome of the team which shows that our findings do not simply reflect fully rational responses to reference dependent incentive schemes of favorite teams to falling behind we derive these results in a data set that contains more than 8 200 matches from 12 seasons of the german bundesliga and 12 seasons of the english premier league this paper was accepted by uri gneezy behavioral economics

reference points and effort provision a key open question for theories of reference dependent preferences is what determines the reference point one candidate is expectations what people expect could affect how they feel about what actually occurs in a real effort experiment we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision we find that effort provision is significantly different between treatments in the way predicted by models of expectation based reference dependent preferences if expectations are high subjects work longer and earn more money than if expectations are low

hours restrictions and labor supply the authors estimate a labor supply model that permits hours restrictions of a simple but general form each individual chooses from among a finite set of jobs drawn at random f rom a market distribution each offering a fixed quantity of hours the polar cases of no constraints on hours worked and exogenous hours ar e nested within the general case the authors results are consistent with a substantial amount of rationing in the work hours of a sample of low income men most of whom are working less than they would like copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

estimation of a labour supply model with censoring due to unemployment and underemployment this study proposes and implements a method of labour supply estimation which is appropriate when the sample contains unemployed and underemployed workers the estimation method consists of excluding unemployed and underemployed workers from the sample and then using to avoid selection bias an extension of heckman s approach to the case where two correlated selection rules generate the sample hausman s specification test is then used to determine whether ignoring constrained workers has led to biases in traditional labour supply estimates and the empirical results suggest that previous estimates of several important parameters are biased since the biases go in the direction that would be predicted by the hypothesis that the unemployed and underemployed are constrained the results support this hypothesis

the effects of hours constraints on labor supply estimates almost all labor supply models are estimated under the assumption that workers are free to choose their hours however theory casual empiricism and survey data suggest that many workers are not free to vary the hours within a job consequently labor supply estimates based on actual hours of work may be biased using canadian data on desired hours of work the authors find that using actual hours causes labor supply estimates to be biased upwards copyright 1991 by mit press