Loss Aversion and Labor Supply
In many occupations workersï¿½ 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 difficult. Here we present evidence from studies examining labor supply responses in ï¿½neoclassical environmentsï¿½ 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.
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"Labor Supply of New York City Cab Drivers: One Day At A time,"
960, California Institute of Technology, Division of the Humanities and Social Sciences.
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