Prof. Artinger leads the Economics & Psychology Seminar

Prof. Dr. Florian Artinger, Head of Program, BA Digital Business & Management, was leading the recent Economics and Psychology Seminar- a joint initiative of the Sorbonne Economics Centre and the Paris School of Economics. In the framework of the seminar focusing on behavioral and experimental economics, cognitive science and experimental psychology, Prof. Dr. Florian Artinger presented his latest research: “Labor provision when individual incentives are barely predictable: An analysis of the behavior of taxi drivers”. The seminar was broadcasted via Zoom on Friday, March 25.

Abstract:

When changes in incentives are hard to predict: An analysis of the behavior of taxi drivers

by Florian M. Artinger, Gerd Gigerenzer, Perke Jacobs

At the heart of economics is the study of how incentives shape behavior. In its simplest form this implies that if people can get more money, they are expected to work more. However, an influential study in 1997 by Colin Camerer and colleagues suggests that people violate this basic assumption.

Studying as an example the behavior of New York taxi drivers who can freely allocate their time, the authors find that drivers use an income target for a given day. Such a target is for instance to earn 100 USD. If drivers reach the target, they stop their shift. This implies that if on a given day there is more demand for taxi drivers and hence higher hourly wages, they more quickly reach their income target and stop early.

Economic theory suggests otherwise – if there is an opportunity to earn higher hourly wages than usually, this should yield greater effort and longer working hours. The study by Camerer et al. has become the poster child of Behavioral Economics whereby people apparently act irrationally and violate economic theory. In this study we analyze the behavior of Hamburg taxi drivers (the data from New York have not been publicly available) and show that taxi drivers act by no means irrational. Rather it is hardly possible to predict changes in hourly wages. We present an alternative way of understanding behavior that portraits taxi drivers as anything else but irrational.