Essays in Applied Microeconomics

Abstract

This dissertation consists of three self-contained applied microeconomics essays on

topics related to behavioral economics and industrial organization.

Chapter 1 studies how sentiment as a result of sports event outcomes affects

consumers’ tipping behavior in the presence of social norms. I formulate a model of

tipping behavior that captures consumer sentiment following a reference-dependent

preference framework and empirically test its relevance using the game outcomes of

the NBA and the trip and tipping data on New York City taxicabs. While I find that

consumers’ tipping behavior responds to unexpected wins and losses of their home

team, particularly in close game outcomes, I do not find evidence for loss aversion.

Coupled with the findings on default tipping, my empirical results on the asymmetric

tipping responses suggest that while social norms may dominate loss aversion, affect

and surprises can result in freedom on the upside of tipping.

Chapter 2 utilizes a novel data source of airline entry and exit announcements

and examines how the incumbent airlines adjust quality provisions as a response to

their competitors’ announcements and the role of timing in such responses. I find

no evidence that the incumbents engage in preemptive actions when facing probable

entry and exit threats as signaled by the competitors’ announcements in either short

term or long term. There is, however, evidence supporting their responses to the

competitors’ realized entry or exit. My empirical findings underscore the role of

timing in determining preemptive actions and suggest that previous studies may have

overestimated how the incumbent airlines respond to entry threats.

Chapter 3, which is collaborated with Benjamin Ho, investigates the habit formation

of consumers’ thermostat setting behavior, an often implicitly made decision and

yet a key determinant of home energy consumption and expenditures. We utilize a

high frequency dataset on household thermostat usage and find that while thermostat

usage exhibits strong persistence in habits, consumers do respond to salient outdoor

temperature shocks and the underlying heterogeneity in preferences can help explain

much of the variation in responses. Our findings have direct policy implications on

how conservation policies impact energy use.