Field Applications and Explorations of Reference-Dependence
Friday, Jan. 3, 2020 8:00 AM - 10:00 AM (PST)
- Chair: Charles Sprenger, University of California-San Diego
Tipping and the Dynamics of Social Norms
AbstractThis paper presents a model of social norms as reference points and how norms change. The model provides conditions under which changes in behavior occur and characterizes how quickly behavior converges to a new steady state. We test the predictions of the model in the context of tipping decisions, where suggested tip amounts help establish norms. Using tip data from New York City taxi rides, the empirical tests exploit variation across taxis in suggested tip amounts as well as over time due to a permanent fare increase in 2012. We estimate the model to discuss consumer surplus and welfare.
The Negative Consequences of Loss-Framed Performance Incentives
AbstractBehavioral economists have proposed that loss-averse employees increase productivity when bonuses are "loss framed"—prepaid then clawed back if targets are unmet. We theoretically document that loss framing raises incentives for costly risk mitigation and for inefficient multitasking, potentially leading to large negative performance effects. We empirically document evidence of these concerns in a nationwide field experiment among 294 car dealers. Dealers randomized into loss-framed (but financially identical) contracts sold 5% fewer vehicles than control dealers, generating a revenue loss of $45 million over 4 months. We discuss implications regarding the use of behavioral economics to motivate both employees and firms.
The Role of Goals in Motivating Behavior: Evidence from a Large-Scale Field Experiment on Resource Conservation
AbstractGoal-setting is ubiquitous in the modern digitized world abundant with quan- tifiable information about individual behavior. A large literature in psychol- ogy demonstrates that goals can motivate effort even when not tied to ex- plicit incentives. Yet, few studies establish the relevance of goals using field evidence, and there is little guidance on how to incorporate goal-setting into economic decision-making and policy frameworks. We provide causal evi- dence on the impact of goals and feedback on behavior from a large-scale field experiment in the context of resource conservation in the shower. We randomly assign exogenous goals coupled with real-time feedback via smart meters and collect fine-grained behavioral measures over a duration of up to 6 months. Our main findings are as follows: (i) while feedback alone already induces large conservation efforts, goal-setting increases this savings effect substantially; (ii) effects remain stable over time; (iii) the relationship between goal difficulty and effort appears to be non-monotonic but reverse U-shaped instead; (iv) hazard rates of individual showers suggest that effort is partic- ularly strong when a goal is in sight (bunching) but quickly dies off as soon as it becomes out of reach. These results are best explained by a fixed-penalty model instead of a loss-aversion-model with goals as reference points.
- D1 - Household Behavior and Family Economics
- D9 - Micro-Based Behavioral Economics