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20 - Labor Supply of New York City Cab Drivers: One Day at a Time
- from PART FIVE - APPLICATIONS
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- By Colin F. Camerer, California Institute of Technology, Linda Babcock, Carnegie Mellon University, George Loewenstein, Carnegie Mellon University, Richard H. Thaler, University of Chicago
- Edited by Daniel Kahneman, Princeton University, New Jersey, Amos Tversky, Stanford University, California
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- Book:
- Choices, Values, and Frames
- Published online:
- 01 February 2019
- Print publication:
- 25 September 2000, pp 356-370
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Summary
“It was raining hard in Frisco/I needed one more fare to make my night”
Harry Chapin, “Taxi”INTRODUCTION
Theories of labor supply predict how the number of hours people work will change when their hourly wage or income changes. The standard economic prediction is that a temporary increase in wages should cause people to work longer hours. This prediction is based on the assumption that workers substitute labor and leisure intertemporally, working more when wages are high and consuming more leisure when its price - the forgone wage - is low (e.g., Lucas and Rapping 1969). This straightforward prediction has proven difficult to verify. Studies of many types often find little evidence of intertemporal substitution (e.g., Laisney, Pohlmeier, and Staat 1996). However, the studies are ambiguous because when wages change, the changes are usually not clearly temporary (as the theory requires). The studies also test intertemporal substitution jointly along with auxiliary assumptions about persistence of wage shocks, formation of wage expectations, separability of utility in different time periods, and so forth.
An ideal test of labor supply responses to temporary wage increases requires a setting in which wages are relatively constant within a day but uncorrelated across days, and hours vary every day. In such a situation, all dynamic optimization models predict a positive relationship between wages and hours (e.g., MaCurdy, 1981, p. 1074).
32 - Preferences for Sequences of Outcomes
- from PART SEVEN - CHOICE OVER TIME
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- By George F. Loewenstein, Carnegie Mellon University, Dražen Prelec, Massachusetts Institute of Technology
- Edited by Daniel Kahneman, Princeton University, New Jersey, Amos Tversky, Stanford University, California
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- Book:
- Choices, Values, and Frames
- Published online:
- 01 February 2019
- Print publication:
- 25 September 2000, pp 565-577
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ABSTRACT. Existing models of intertemporal choice normally assume that people are impatient, preferring valuable outcomes sooner rather than later, and that preferences satisfy the formal condition of independence, or separability, which states that the value of a sequence of outcomes equals the sum of the values of its component parts. The authors present empirical results that show both of these assumptions to be false when choices are framed as being between explicitly defined sequences of outcomes. Without a proper sequential context, people may discount isolated outcomes in the conventional manner, but when the sequence context is highlighted, they claim to prefer utility levels that improve over time. The observed violations of additive separability follow, at least in part, from a desire to spread good outcomes evenly over time.
Decisions of importance have delayed consequences. The choice of education, work, spending and saving, exercise, diet, as well as the timing of life events, such as schooling, marriage, and childbearing, all produce costs and benefits that endure over time. Therefore, it is not surprising that the problem of choosing between temporally distributed outcomes has attracted attention in a variety of disciplinary settings, including behavioral psychology, social psychology, decision theory, and economics.
In spite of this disciplinary diversity, empirical research on intertemporal choice has traditionally had a narrow focus. Until a few years ago, virtually all studies of intertemporal choice were concerned with how people evaluate simple prospects consisting of a single outcome obtained at a point in time. The goal was to estimate equations that express the basic relationship between the atemporal value of an outcome and its value when delayed.
Information, fairness, and efficiency in bargaining
- Edited by Barbara A. Mellers, University of California, Berkeley, Jonathan Baron, University of Pennsylvania
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- Book:
- Psychological Perspectives on Justice
- Published online:
- 24 October 2009
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- 24 September 1993, pp 155-180
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Economic theory assumes people strive for efficient agreements that benefit all consenting parties. The frequency of mutually destructive conflicts such as strikes, litigation, and military conflict, therefore, poses an important challenge to the field.
Among economists, game theorists have devoted the most attention to inefficiency and have proposed a number of theories to explain why inefficient agreements occur. Most of these revolve around a common theme: Inefficiencies arise because parties possess incomplete information. Bargainers often lack information about how much other parties value an agreement (Babcock, 1991; Hayes, 1984; Tracy, 1987), about the personal characteristics (e.g., impatience) of the other party (Rubinstein, 1985), or the likely consequence of nonsettlement as determined by the ruling of an arbitrator or the existence of other parties willing to make a deal (Priest & Klein, 1984).
Incomplete information impedes settlement for two reasons. First, when bargainers lack information about the other party, they may use the bargaining process to find out the missing information. For example, a union might call a strike to assess management's ability to withstand a strike. Second, when bargainers lack information about the other party's tastes or opportunities, they may overestimate the other party's willingness to make concessions. For example, the seller of a used car may hold out for an unrealistically high price in the erroneous belief that the buyer really likes the car or is impatient to buy it.