Juanjuan Meng

Graudate Student – Department of Economics

Phone: (858) 366-3549

Email: jumeng@ucsd.edu

Working Papers

  • The Disposition Effect and Expectations as Reference Point

    • (Job Market Paper),2009

    This paper proposes a model of reference-dependent preferences to explain the disposition effect, the tendency for traders in the stock market to be more willing to sell winners than losers. Focusing on aversion to losses relative to a reference point, the model predicts a V-shaped relationship between the optimal stock position and stock price, which closely links the minimum-demand point to the reference point. I estimate the model empirically using Odean (1999)'s data on individual trading from a large brokerage house. The estimates show that (i) the predicted V-shape relationship exists for a large majority of traders, and (ii) the estimated reference point demonstrates properties that make expectations the most reasonable candidate. The fact that reference point is influenced by expectations that are mostly positive due to the initial purchase decision allows a simple explanation of the disposition effect.

  • New York City Cabdrivers’ Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income

    • With Vincent P. Crawford (Forthcoming the American Economic Review), July 2009.

    This paper proposes a model of cabdrivers’ labor supply, building on Henry S. Farber’s (2005, 2008) empirical analyses and Botond Kőszegi and Matthew Rabin’s (2006; henceforth “KR”) theory or reference-dependent preferences. Following KR, our model has targets for hours as well as income, both determined by rational expectations. Estimated with Farber’s data, our model reconciles his finding that stopping probabilities are significantly related to hours but not income with Colin Camerer et al.’s (1997) negative wage elasticity of hours; and avoids his criticism that estimates of drivers’ income targets are too unstable to yield a useful model of labor supply.

    Research In Progress

    Social Distance, Interpersonal Interaction and Impersonal Exchange.

    Personal relationships and anonymous market have been previously modeled in ways that prevent them from coexisting in equilibrium as contract enforcement mechanisms. Empirical evidence nonetheless suggests that they sometimes coexist. This paper introduces social utility into preferences, which is determined by social distance and specific to personal relationships but not to impersonal anonymous market exchange. This preference-based approach allows the two modes of exchange to coexist in equilibrium and further characterizes how their market shares depend on the degree of social heterogeneity. The possibility of impersonal exchange improves welfare and equality among buyers in general. But there also exist cases where competition between the two forms of exchange makes welfare and equality deteriorate.