Thomas Graeber

Title: Comparisons

Abstract:  Economic decisions often depend on comparison points such as reference points, anchors, goals, expectations and peers. A long-standing puzzle is that decisions sometimes increase in these comparators (assimilation) and sometimes decrease in them (contrast). We develop a simple taxonomy that predicts the sign. The idea is that when people are uncertain how to map decision inputs into outputs, comparison points are used as information. This logic predicts that decisions decrease in input comparators—those tied to exogenous decision inputs (e.g., a typical hourly wage)—and increase in output comparators—those tied to endogenous decisions or outcomes (e.g., typical daily earnings). We test and confirm these predictions in experiments on labor supply, investment and belief updating, involving both social and expectations-based comparison points. We further show that comparison effects weaken both when decision uncertainty is reduced and when comparators are less informative, consistent with a mechanism of comparison points as information. Finally, a systematic classification of the prior literature shows that the input-vs.-output taxonomy robustly predicts the sign of comparison effects across more than 100 experimental and field observational studies.