Loss Aversion and Labor Supply

By Ernst Fehr, David Huffman, Lorenz F. Goette. Social Science Research Network, 2004

133 citations recorded by the source corpus.

In many occupations, workers’ labor supply choices are constrained by institutional rules regulating labor time and effort provision. This renders explicit tests of the neoclassical theory of labor supply difŽ cult. Here we present evidence from studies examining labor supply responses in “neoclassical environments” in which workers are free to choose when and how much to work. Despite the favorable environment, the results cast doubt on the neoclassical model. They are, however, consistent with a model of reference-dependent preferences exhibiting loss aversion and diminishing sensitivity.

Subfields: Economics and Econometrics, Gender Studies, Safety Research

View Paper: https://www.semanticscholar.org/paper/dfbdadfbdfd77901b2ccfd06ed60f354a471874d

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Citations in the corpus

Field experiments in labor economics (2010, background): “This may be because of legal, technological or informational constraints (Lazear, 1989; Bewley, 1999; Encinosa et al., 1997; Fehr et al., 2004).”
A Behavioral Account of the Labor Market: The Role of Fairness Concerns (2008, background): “The setup in this study is somewhat complex, as the tree planters are paid a piece rate and the income change induced by the wage gift may interact with these explicit incentives (see Goette et al (2004)) for a discussion of these motives).”
Happiness and loss aversion : is utility concave or convex in relative income? (2007, background): “Another labour supply implication is suggested by research of Goette et al. (2004) on withinday labour supply of cabdrivers and bicycle messengers.”
Loss Aversion Under Prospect Theory: A Parameter-Free Measurement (2007, background): “…examples are the equity premium puzzle (Mehra and Prescott 1985; Benartzi and Thaler 1995), asymmetric price elasticities (Hardie et al. 1993), downward-sloping labor supply (Dunn 1996; Camerer et al. 1997; Goette et al. 2004), and the buying strategies of hog farmers (Pennings and Smidts 2003).”