Research Economist, Federal Reserve Bank of New York
Ph.D. in Economics, New York University, 2024
Emaabcil: lee.eungik@abcgmabcailabc.com
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Working Papers
Earnings Shocks, Expectations, and Spending
with Johan Sæverud
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Abstract
The impact of earnings shocks on workers' earnings expectations is a key determinant of subsequent consumption changes.
Using a unique combination of an expectations panel survey and administrative data from Denmark, we identify earnings shocks, expectation changes, and consumption changes that are often challenging to observe.
Simultaneously, prevailing assumptions in the income process literature, including perfect differentiation of permanent and transitory shocks, have limitations in explaining the empirical expectation changes upon earnings shocks.
We introduce a new income process model in which workers possess partial information about the nature of earnings shocks.
Our estimates show that workers distinguish only half of permanent and transitory shocks.
We further investigate the implications of partial information on consumption changes both empirically and through the lens of a model.
We find that workers' partial information about the earnings shocks is important to match the degree of consumption response upon earnings shocks.
Moreover, we show that partial information better predicts the consumption insurance level observed in empirical literature than other conventional assumptions.
Subjective Earnings Risk
with Andrew Caplin, Victoria Gregory, Soren Leth-Petersen, Johan Sæverud
Accepted at Review of Economic Studies
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Abstract
Earnings risk is central to economic analysis. While this risk is essentially subjective, it is typically inferred from administrative data. Following the lead of Dominitz and Manski, 1997, we introduce a survey instrument to measure subjective earnings risk. We pay particular attention to the expected impact of job transitions on earnings. A link with administrative data provides multiple credibility checks. It also shows subjective earnings risk to be far lower than its administratively-estimated counterpart. This divergence arises because expected earnings growth is heterogeneous, even within narrow demographic and earnings cells. We calibrate a life-cycle model of search and matching to administrative data and compare the model-implied expectations with our survey instrument. This calibration produces far higher estimates of individual earnings risk than do our subjective expectations, regardless of age, earnings, and whether or not workers switch jobs. This divergence highlights the need for survey-based measures of subjective earnings risk.
The Resolution of Uncertainty in the Value and Probability Domains
with Kathleen Ngangoue, Andrew Schotter
R&R at Games and Economic Behavior
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Abstract
We compare preferences for resolution of uncertainty when the uncertainty is resolved over a probability rather than a value. In various existing frameworks--e.g., Kreps and Porteus (1978) --, preferences over gradual versus one-shot resolution do not depend on whether values or probabilities define the main object of uncertainty. Yet, in our experiment, a large majority of subjects preferred to resolve uncertain values gradually but uncertain probabilities all at once--both with uncertainty defined over gains and losses. We investigate the possible determinants of this discrepancy and propose an explanation for it using what we call ``process utility''. Finally we investigate this idea on a set of experiments, which confirm our theoretical expectations.
Communicating Social Security Reform
with Andrew Caplin, Soren Leth-Petersen, Johan Sæverud
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Abstract
Despite its centrality in monetary policy, communication is not a focus in social security reform. We investigate the potential for active communication to dissipate apparently widespread public confusion about the future of social security. We implement a simple information treatment in which we randomly provide survey respondents access to the longevity-based eligibility age implemented by reform that Denmark launched in 2006. Absent treatment, younger workers not only have biased beliefs, expecting to become eligible for social security earlier than policy makers intend, but also are highly uncertain about eligibility age. The information treatment eliminates the bias, suggesting it results from misunderstanding. Yet it has no influence on uncertainty, suggesting this is driven by unavoidable demographic and political uncertainties. Our results highlight the value of communication strategies and belief measurement as policy instruments outside the monetary policy arena.
Teaching Practices, Prosocial Giving, and Friendship Networks
with Syngjoo Choi, Booyuel Kim, Euncheol Shin, Yoonsoo Park
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Abstract
We investigate the effects of a semester-long student-centered teaching program on prosocial giving and network homophily by conducting pre- and post-intervention friendship surveys and dictator game experiments. Using a difference-in-differences method, we show that the intervention promotes prosocial giving to indirectly connected peer students, strengthens class and gender homophily in friendship, and reduces average distance among indirectly connected students. By structurally estimating a network formation model, we infer that the program also reduces costs of making friends of both genders in the same class. Our findings offer novel micro-level insights on the connection between teaching practices and social capital and networks.
Publications
North Korean Refugees' Implicit Bias against South Korea Predicts Market Earnings
with Syngjoo Choi, Byung-Yeon Kim, Jungmin Lee, Simon Lee
Journal of Development Economics (2024)
Link
Irreversibility and Monitoring in Dynamic Games:
Experimental Evidence
with Bongjune Choi, Syngjoo Choi, Yves Gueron
International Economic Review (2023), *first author
Link
Probability Weighting and Cognitive Ability
with Syngjoo Choi, Jeongbin Kim, Jungmin Lee
Management Science (2022)
Link
Higher Order Risk Attitudes and Prevention under Different Timings of Loss
with Takehito Masuda
Experimental Economics (2019)
Link