Seminar 218, Psychology and Economics: Daily Labor Supply and Adaptive Reference Points

Seminar | February 26 | 2-3:30 p.m. | 648 Evans Hall

 Neil Thakral, Brown University

 Department of Economics

Link to Paper

ABSTRACT: This paper provides field evidence on how reference points adjust, a degree of freedom in reference-dependence models. To examine this in the context of cabdrivers’ daily labor-supply behavior, we ask how the within-day timing of earnings affects decisions. Drivers work less in response to higher accumulated income, with a strong effect for recent earnings that gradually diminishes for earlier earnings. We estimate a structural model in which drivers work towards a reference point that adjusts to deviations from expected earnings with a lag. This dynamic view of reference dependence reconciles the “neoclassical” and “behavioral” theories of daily labor supply.