Toward an Understanding of Reference-Dependent Labor Supply: Theory and Evidence from a Field Experiment

Steffen Andersen, Alec Brandon, Uri Gneezy and John List

No 20695, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: C93 D01 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-exp, nep-lab and nep-upt
Note: LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.nber.org/papers/w20695.pdf (application/pdf)

Related works:
Working Paper: Toward an Understanding of Reference-Dependent Labor Supply: Theory and Evidence from a Field Experiment (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:20695

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20695

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().