Abstract: In jobs in which workers have the flexibility to decide how much work to supply, such as in the gig economy, the effect of a wage change on work supply can be hard to predict. A wage increase, for example, offers workers the opportunity to make more money, so they may want to work more, but at the same time, it allows them to enjoy more leisure, so they do not need to work so much. Economic theory alone does not predict which outcome is more likely to occur, and empirical evidence on the short-term effect of wage change on work supply is also mixed. This research provides some psychological insights into this economic problem by showing that the effect of wage change on work supply depends on how the change is framed. Specifically, for a worker who used to work A hours to earn $X, if the wage change is presented as a payment change (“work the same A hours and earn $Y”), then work supply is expected to change in the same direction as the wage change. By contrast, if the wage change is presented as a workload change (“work B hours and earn the same $X”), then work supply is expected to change in the opposite direction of the wage change. This wage frame effect occurs because in multi-attribute decisions, decision makers assign greater weight to attributes that change than to those that remain constant. A series of experiments (total N = 2,599) demonstrates the wage frame effect on both expressed willingness-to-work and actual work performance, and tests the proposed account as well as alternative explanations. Since any wage change has to be communicated with some specific frame, the choice of the frame can have powerful effects. In fact, it is even possible for a wage decrease to elicit the same increase in work supply as a wage increase. This research (a) offers psychological insights into a classic economic problem, (b) documents a novel framing effect for the judgment and decision-making literature, and (c) suggests a nudge idea in incentive designs to managers and policy makers.

Abstract: US Households currently hold $770 billion in credit card debt, often managing repayments across multiple accounts. We investigate how minimum payments (i.e., the requirement to allocate at least some money to each account with a balance) alter consumers’ allocation strategies across multiple accounts. Across four experiments, we find that minimum payment requirements cause consumers to increase dispersion (i.e., spread their repayments more evenly) across accounts. We term this change in strategy the dispersion effect of minimum payments and provide evidence that it can be costly for consumers. We find that the effect is partially driven by the tendency for consumers to interpret minimum payment requirements as recommendations to pay more than the minimum amount. While the presence of the minimum payment requirement is unlikely to change, we propose that marketers and policymakers can influence the effects of minimum payments on dispersion by altering the way that information is displayed to consumers. Specifically, we investigate five distinct information displays and find that choice of display can either exaggerate or minimize dispersion and corresponding costs. We discuss implications for consumers, policy makers, and firms, with a particular focus on ways to improve consumer financial well-being.

Abstract: We study how ownership affects learning and beliefs. Using an experimental asset market, we find that owning a good leads people to over-extrapolate from signals about its underlying value: after seeing positive signals, people become too optimistic, after seeing negative signals, they become too pessimistic. This result holds relative to a Bayesian benchmark and compared to learning about goods they do not own. In fact, learning is less biased and more "correct" about goods that are not owned. We replicate these results in field data, showing that asset owners over-extrapolate nearly twice as much as non-owners from the same signals.

Abstract: A growing literature uses economic behaviors in field settings to test predictions generated by various psychological models. In some cases, psychological theories make conflicting predictions for the same consumer context. In this paper, we attempt to reconcile two conflicting predictions about upgrading behavior, one made by category budgeting (e.g.,Heath and Soll, 1996, Thaler, 1985)—which suggests people will upgrade less as prices go up—and one made by relative thinking (e.g., Kahneman and Tversky, 1981)—which suggests people will upgrade more as prices go up.

Abstract: Expectations and learning from new information are critical inputs to economic behavior. We study how people update their beliefs in stable vs. unstable information environments. We document two novel empirical facts using learning experiments with simple data generating processes. First, people in stable environments update their beliefs “as-if” the environment is unstable. They update their beliefs too much relative to Bayesian learning in response to signals, especially in later rounds of our task. Second, people in simple unstable environments underreact to the possibility of change. When told about the possibility of change at a specific point in time, people do not update their beliefs enough. We rule out misperceptions of signal diagnosticity, memory constraints, and cognitive uncertainty as drivers of our effects. Finally, we provide convergent evidence that people have a fundamental misperception of stability. They perform substantially better when in an information environment calibrated to prior participants’ perceptions of stability. Our experiments shed light on forecasters’ tendency to both over and underreact to new information.