B05
Incentive Design in the Presence of Social Preferences
Discussion Papers

Discussion Paper No. 196
November 4, 2019

Do Performance Ranks Increase Productivity? Evidence from a Field Experiment

Author:

Ashraf, Anik (LMU Munich)

Abstract:

Can a firm increase its workers' eff ort by introducing competition through performance-based ranking? On one hand such ranking can increase eff ort because of individuals' desire for status from high ranks, but on the other, it can demotivate them or make them wary of outperforming peers. This paper disentangles the e ffects of demotivation, social conformity, and status associated with ranking through a randomized experiment at a Bangladeshi sweater factory. Treated workers receive monthly information on their relative performance either in private or in public. Both a simple theoretical framework and empirical evidence from the field show that workers' intrinsic desire to be good at work induces privately ranked workers to increase eff ort upon receiving positive feedback, but they get demotivated and decrease e ffort upon receiving negative feedback. Public ranking lead to lower net eff ort relative to private ranking because of a strong preference not to outperform friends. The negative e ffects from demotivation and social conformity may explain why the existing literature finds mixed evidence of impact of ranking workers.

Keywords:

peer effects; productivity; rank incentives

JEL-Classification:

D23; J53; O15

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Discussion Paper No. 190
October 16, 2019

Complexity and Distributive Fairness Interact in Affecting Compliance Behavior

Author:

Bellemare, Charles (Université Laval)
Deversi, Marvin (LMU Munich)
Englmaier, Florian (LMU Munich)

Abstract:

Filing income tax returns or insurance claims often requires that individuals comply with complex rules to meet their obligations. We present evidence from a laboratory tax experiment suggesting that the effects of complexity on compliance are intrinsically linked to distributive fairness. We find that compliance remains largely una ffected by complexity when income taxes are distributed to a morally justi fied charity. Conversely, complexity signi ficantly amplifi es non-compliance when income taxes appear wasted as they are distributed to a morally dubious charity. Our data further suggest that this non-compliance pattern is facilitated through the ambiguity that evolves from mostly unstrategic fi ling mistakes.

Keywords:

complexity; compliance; distributive fairness; experiment

JEL-Classification:

C91; D01; D91; H26

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Discussion Paper No. 178
August 7, 2019

Managerial Payoff and Gift-Exchange in the Field

Authors:

Englmaier, Florian (LMU Munich)
Leider, Steve (University of Michigan)

Abstract:

We conduct a field experiment where we vary both the presence of a gift-exchange wage and the effect of the worker's effort on the manager's payoff. Results indicate a strong complementarity between the initial wage-gift and the agent's ability to "repay the gift". We control for differences in ability and reciprocal inclination and show that gift-exchange is more effective with more reciprocal agents. We present a principal-agent model with reciprocal subjects that motivates our findings. Our results help to reconcile the conflicting evidence on the efficacy of gift-exchange outside the lab.

Keywords:

incentives; field experiments; gift-exchange; reciprocity

JEL-Classification:

C91; J33; M52

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Discussion Paper No. 173
July 30, 2019

Boolean Representations of Preferences under Ambiguity

Authors:

Frick, Mira (Yale University)
Iijima, Ryota (Yale University)
Le Yaouanq, Yves (LMU Munich)

Abstract:

We propose a class of multiple-prior representations of preferences under ambiguity where the belief the decision-maker (DM) uses to evaluate an uncertain prospect is the outcome of a game played by two conflicting forces, Pessimism and Optimism. The model does not restrict the sign of the DM's ambiguity attitude, and we show that it provides a unified framework through which to characterize different degrees of ambiguity aversion, as well as to represent context-dependent negative and positive ambiguity attitudes documented in experiments. We prove that our baseline representation, Boolean expected utility (BEU), yields a novel representation of the class of invariant biseparable preferences (Ghirardato, Maccheroni and Marinacci, 2004), which drops uncertainty aversion from maxmin expected utility (Gilboa and Schmeidler, 1989), while extensions of BEU allow for more general departures from independence.

Keywords:

multiple priors; ambiguity; dual-self models

JEL-Classification:

D81

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Discussion Paper No. 164
July 3, 2019

An Economic Model of the Meat Paradox

Authors:

Hestermann, Nina (University of St Andrews)
Le Yaouanq, Yves (LMU Munich)
Treich, Nicolas (Toulouse School of Economics and INRA)

Abstract:

Many individuals have empathetic feelings towards animals but frequently consume meat. We investigate this "meat paradox" using insights from the literature on motivated reasoning in moral dilemmata. We develop a model where individuals form self-serving beliefs about the suffering of animals caused by meat consumption in order to alleviate the guilt associated with their dietary choices. The model makes several specific predictions: in particular, it predicts a positive relationship between individuals' taste for meat and their propensity to engage in self-deception, a high price elasticity of demand for meat, and a causal effect of prices and aggregate consumption on individual beliefs.

Keywords:

motivated reasoning; moral dilemmata; self-deception; meat paradox; meat price-elasticity; animal welfare

JEL-Classification:

D72; D81; D83; D84; Z13

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Discussion Paper No. 139
February 23, 2019

Learning About One’s Self

Authors:

Le Yaouanq, Yves (LMU Munich)
Schwardmann, Peter (LMU Munich)

Abstract:

How can naivete about present bias persist despite experience? To answer this question, our experiment investigates participants' ability to learn from their own behavior. Participants decide how much to work on a real effort task on two predetermined dates. In the week preceding each work date, they state their commitment preferences and predictions of future effort. While we find that participants are present biased and initially naive about their bias, our methodology enables us to establish that they are Bayesian in how they learn from their experience at the first work date. A treatment in which we vary the nature of the task at the second date further shows that learning is unencumbered by a change in environment. Our results suggest that persistent naivete cannot be explained by a fundamental inferential bias. At the same time, we find that participants initially underestimate the information that their experience will provide - a bias that may lead to underinvestment in experimentation and a failure to activate self-regulation mechanisms.

Keywords:

naivete; present bias; learning

JEL-Classification:

D83; D90

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Discussion Paper No. 127
December 20, 2018

Behavioral Characterizations of Naivete for Time-Inconsistent Preferences

Authors:

Ahn, David S. (University of California)
Iijima, Ryota (Yale University)
Le Yaouanq, Yves (LMU Munich)
Sarver, Todd (Duke University)

Abstract:

We propose nonparametric definitions of absolute and comparative naivete. These definitions leverage ex-ante choice of menu to identify predictions of future behavior and ex-post (random) choices from menus to identify actual behavior. The main advantage of our definitions is their independence from any assumed functional form for the utility function representing behavior. An individual is sophisticated if she is indifferent ex ante between retaining the option to choose from a menu ex post or committing to her actual distribution of choices from that menu. She is naive if she prefers the flexibility in the menu, reflecting a mistaken belief that she will act more virtuously than she actually will. We propose two definitions of comparative naivete and explore the restrictions implied by our definitions for several prominent models of time inconsistency.

Keywords:

naive; sophisticated; time inconsistent; comparative statics

JEL-Classification:

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Discussion Paper No. 124
November 2, 2018

It’s not my Fault! Self-Confidence and Experimentation

Authors:

Hestermann, Nina (Toulouse School of Economics)
Le Yaouanq, Yves (LMU Munich)

Abstract:

We study the inference and experimentation problem of an agent in a situation where the outcomes depend on the individual's intrinsic ability and on an external variable. We analyze the mistakes made by decision-makers who hold inaccurate prior beliefs about their ability. Overconfident individuals take too much credit for their successes and excessively blame external factors if they fail. They are too easily dissatisfied with their environment, which leads them to experiment in variable environments and revise their self-confidence over time. In contrast, underconfident decision-makers might be trapped in low-quality environments and incur perpetual utility losses.

Keywords:

overconfidence; attribution bias; experimentation; learning.

JEL-Classification:

D83

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Discussion Paper No. 106
July 23, 2018

Relational Contracts with Private Information On the Future Value of the Relationship
The Upside of Implicit Downsizing Costs

Authors:

Fahn, Matthias (JKU Linz)
Klein, Nicolas (University of Montreal)

Abstract:

We analyze a relational contracting problem, in which the principal has private information about the future value of the relationship. In order to reduce bonus payments, the principal is tempted to claim that the value of the future relationship is lower than it actually is. To induce truth-telling, the optimal relational contract may introduce distortions after a bad report. For some levels of the discount factor, output is reduced by more than would be sequentially optimal. This distortion is attenuated over time even if prospects remain bad. Our model thus provides an alternative explanation for indirect short-run costs of downsizing.

Keywords:

relational contracts; sequential inefficiencies; downsizing

JEL-Classification:

C73; D86

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Discussion Paper No. 88
March 26, 2018

Individual Differences and Contribution Sequences in Threshold Public Goods

Authors:

Schüssler, Katharina (LMU Munich)
Schüssler, Michael (LMU Munich)
Mühlbauer, Daniel (function(HR))

Abstract:

Following the notion that organizations often face public good dilemmas when collective action is needed, we use a real-time provision-point mechanism to experimentally explore the process of achieving cooperative equilibria. Specifically, besides exploring group outcomes, we identify individual antecedents for the timing of the contribution to the public good. In addition, we study the role of different situational factors for sustaining high rates of cooperation: information about others' actions and the number of individuals necessary for public good provision. We find that contribution and implementation rates are relatively high, with only a moderate decline over time, and that social value orientation as well as several personality traits help to explain the observed contribution sequences.

Keywords:

provision-point mechanism; real-time protocol; personality traits

JEL-Classification:

C92; D70; H41

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