Behavioral economics field evidence (Della Vigna JEL in press)CategoriesNon-standard preferencesSlide 4Reference-dependence in labor supplyCab driver “income targeting” (Camerer et al QJE 97)Cab driver instrumental variables (IV) showing experience effectSlide 8Interviews: Great idea!Farber (JPE 04) hazard rate estimation: Do hrs worked or accumulated income predict quitting?Do they quit because of hours or $? Getting tired is a stronger regularity than targettingAlan Krueger 6/26/03 NYTimes columnSlide 13Big tip experimentSlide 15Field and lab experiments“Behavioralist meets the market” (List JPE 06 )John List JPEBasic lab replication is weak (t=1.80, .05<p<.10 2-tailed)Effect of quality on price: Lab (I) to field (III, IV-P) generalizes well…but driven by “local (L)” dealersLevitt-List (JEcPers 07) articulated concerns about stereotypical lab experimentsLevitt-List conclusion re: List 04Non-standard beliefsNon-standard decision makingInformation vs “news”: Attention to NYTimes story about cancer drug moves a stock (Huberman-Regev 01 JFin)Limited attention in financeSlide 28Horse and rabbit stew (Benartzi-Thaler 01)Slide 30Examples in political economyConclusion1Behavioral economics field evidence (Della Vigna JEL in press) • A boom in clever field studies showing impact of psychology on economic behavior • Largely fueled by experimental data  tells you what to look for • Wide variety of topics & methods• High impact (citations, buzz) and easier to publish than experiments2Categories•Non-standard preferences–Self control, reference-dependence, social preferences•Non-standard beliefs–Overconfidence, non-Bayesian, projection bias•Non-standard decision making–Limited attention, menu effects, social pressure, persuasion3Non-standard preferences•Self-control –Exercise: People overpay for annual health club memberships –Deadlines: •Imposed equally-spaced deadlines for proofreading improved performance (135 vs 70)•Endogenous choice? Majority picked deadlines…but bunched too close to end of the term –Credit and savings. Many examples4Non-standard preferences•Reference-dependence:–Organ donation: Countries with “opt-out” of organ donation have much higher rates than “opt-in” (US)–Huge effect of default into savings (SMaRT plan + 06 Automatic Pension and Savings Protection Act –SMaRT plan (Benartzi-Thaler 04 JPE) exploits two elements of human nature•Tendency to commit and not switch•Dislike nominal take-home pay falling commit workers to put 1/3 of future pay increase into 401(k)•Raises savings strongly–The major practical advance from behavioral economics so far5Reference-dependence in labor supply •Basic questions:–Does supply rise with wage w?•Participation (days worked) vs hours •A: Very low + supply elasticities for males•…but most data from fixed-hours–Intertemporal substitution•Do workers work long hours during temporary wage increases (e.g. Alaska oil pipeline)? (Mulligan JPE 98?)•“Participate” on high-wage days (Oettinger JPE baseball stadium vendors)–Alternative: Amateur “income targeting”6Cab driver “income targeting” (Camerer et al QJE 97)7Cab driver instrumental variables (IV) showing experience effect8273643Possibility of Poisoning Is Raised In the Death of a Haitian Colonel... Is Raised In the Death of a Haitian Colonel ...November 8, 1988 - AP(NYT) - International - News - 431 words Critic's Notebook; Tokyo, City of the $12 Movie ... , City of the $12 Movie ...View free previewNovember 8, 1988 - By VINCENT CANBY, Special to the New York Times (NYT) - Movies - News - 1250 words Save the Catskills Also... Save the Catskills Also ...November 8, 1988 - (NYT) - Editorials and Op-Ed - Letter - 121 words9Interviews: Great idea!•Q: From passage above, do you think others did interviews too? Were they more or less systematic than Farber’s? (his are admittedly “not systematic”)10Farber (JPE 04) hazard rate estimation: Do hrs worked or accumulated income predict quitting? •Note: If workers are targetting, why isn’t the income distribution more spiky?11Do they quit because of hours or $?Getting tired is a stronger regularity than targetting•Note: Which has more measurement error, hours or $? •Big tip experiment!12Alan Krueger 6/26/03 NYTimes column•Now their findings are being debated. First, Gerald S. Oettinger of the University of Texas at Austin published a paper in the Journal of Political Economy on the daily work decisions of food and beverage vendors at a major-league baseball stadium. The vendors were independent contractors, required to work until the seventh inning, but they could choose which games to work. Vendors make more when the number of fans is high and the number of other vendors is low. Professor Oettinger found that vendors were more likely to go to work when the expected payoff was higher -- for example, on days when a larger crowd was expected because of a pivotal game or a quality opponent. The decision of whether to work at all on a high-payoff day -- as opposed to how much to work -- was not considered in the cabdriver study. A: YES IT WAS. PERHAPS KRUEGER DID NOT READ OUR PAPER.13•And most recently, my Princeton colleague Henry S. Farber revisited the question of cabdrivers, studying a different set of drivers. He found that cabdrivers quit after they work a lot of hours and grow weary. How much they have earned to that point has little or nothing to do with their decision. Moreover, the amount the drivers earn varies substantially from day to day, suggesting that their target income levels, if they have them, fluctuate wildly. He suggests that the earlier findings possibly resulted from reporting errors in the data: because daily wages were derived by dividing total revenue by hours worked, any mistake in reported hours would cause a mistake in the opposite direction in the calculated wage, inducing a negative correlation between wages and hours worked. •A: REPORTING ERRORS ARE NOT ENOUGH BECAUSE WE USED IV ESTIMATION. MUST BE REPORTING ERRORS *AND* SPECIFIC-DATE SHOCKS TO LABOR SUPPLY.14Big tip experiment•Prediction of reference-dependent model:–A large windfall will lead to lower labor supply–Example: Give drivers a big surprising tip… predict they will quit early (or street musicians etc)–Tip must not be an indication of a shift in wages–Do it? Only if it would convince true-believer labor