 ComparisonsThomas W. Graeber and Benjamin Enke No 12924, CESifo Working Paper Series from CESifo Abstract: Economic decisions are often shaped by comparison points such as reference points, goals, expectations and peers. A long-standing puzzle is that decisions sometimes increase in these comparators (assimilation) and sometimes decrease in them (contrast). We develop a simple taxonomy that predicts the sign. The idea is that when absolute evaluations - translating a decision input into an output - are difficult, people use comparison points as information about how to navigate tradeoffs. This logic predicts that decisions decrease in input comparators - those tied to exogenous decision inputs (e.g., a typical hourly wage) - and increase in output comparators - those tied to endogenous decisions or outcomes (e.g., typical daily earnings). We test and confirm these predictions in experiments on labor supply, investment and belief updating, involving both social and expectations-based comparison points. We further show that comparison effects weaken both when decision uncertainty is experimentally reduced and when comparators are less informative, consistent with a mechanism of comparisons as information. Finally, a classification of the prior literature suggests that the input-vs.-output taxonomy organizes the sign of comparison effects across more than 100 experimental and field observational studies. Keywords: comparison effects; reference dependence; uncertainty; experiments (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12924 Access Statistics for this paper More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC. |
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