Research Papers

Survey Evidence on Habit Formation (Job Market Paper) [PDF]

Models with habit formation have been used to explain many important economic phenomena, such as the equity premium puzzle, excess sensitivity and smoothness of consumption, and causal effect of high growth on high saving. The literature, however, disagrees or is uninformative regarding the micro evidence of habit formation, which has led to controversies over its existence, specification, and implications. To address this gap, I designed and fielded a survey eliciting ten preference parameters of habit formation. My estimates show that both internal and external habits exist, with the latter accounting for about 17% of habit. Adjustment and cognition costs do not explain habit formation. Habit depreciates by around two thirds per year. Habit formation affects us about as much as keeping up with the Joneses. Proposing and implementing four tests for the preference of habit formation, I find that both the additive and multiplicative specifications, ubiquitous in the literature, are rejected. Finally, I show that habit formation, when combined with keeping up with the Joneses, could explain the Easterlin paradox. The explanation implies that even if happiness eventually stops growing with income, continued income growth is still necessary to maintain happiness.

Measuring Altruism

Does altruism vary with relationships, demographics, and behavior? Structurally estimating a measure of altruism, I find that after controlling for demographics and behavior, the altruism measure increases with the closeness of relationships. Senior white people who are healthier and have more children are on average more altruistic than others. Regarding behavior, people measured as being more selfless tend to retire later, to save more before retirement and for precautionary purposes, to be more likely to leave a bequest greater than $10,000, to transfer more than $500 to children while alive, and to spend more than 100 hours helping a grandchild.


A Social Interaction Model with Ordered Choices, with Xiaodong Liu, Economics Letters, 2017. [PDF]

We introduce a social interaction model with ordered choices. We provide a micro foundation for the econometric model based on an incomplete information network game and characterize the sufficient condition for the existence of a unique equilibrium of the game. We discuss the identification of the model and propose to estimate the model by the NFXP and NPL algorithms. We conduct Monte Carlo simulations to investigate the finite sample performance of these two estimation methods.

Work in Progress

Efficiency Wages and the Cost of Business Cycles

Habit Formation Preferences Consistent with Survey Evidence: Axiomatics and Implications