B05
Incentives, Leadership, and Work Organisation
Discussion Papers

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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Discussion Paper No. 87
March 26, 2018

The Influence of Overconfidence and Competition Neglect On Entry Into Competition

Author:

Schüssler, Katharina (LMU Munich)

Abstract:

I investigate whether two mechanisms leading to biased beliefs about success, overconfidence and competition neglect, influence decisions to enter competitive environments. I use a controlled laboratory setting that allows to elicit belief distributions related to absolute as well as relative overconfidence to study it comprehensively and introduce two treatment variations: First, some participants receive detailed performance feedback addressing absolute and relative overconfidence before making their decision. Second, I vary whether the competition group consists of all potential competitors or only of individuals who also chose to compete. I find that there is systematic heterogeneity in perception biases. In addition, both mechanisms influence individuals' decisions. However, choices are closely tied to previous performance and assessments, and there are no significant gender differences.

Keywords:

competition neglect; competitive behavior; feedback; overconfidence

JEL-Classification:

C91; D83; J16

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Discussion Paper No. 85
March 19, 2018

A Model of Ideological Thinking

Author:

Le Yaouanq, Yves (LMU)

Abstract:

This paper develops a theory in which heterogeneity in political preferences produces a partisan disagreement about objective facts. A political decision involving both idiosyncratic preferences and scientific knowledge is considered. Voters form motivated beliefs in order to improve their subjective anticipation of the future political outcome. In equilibrium, they tend to deny the scientific arguments advocating the political orientations that run counter to their interests. Collective denial is the strongest in societies where contingent policy is the least likely to be implemented, either because of voters' intrinsic preferences or because of rigidities in the political process. The theory predicts that providing mixed evidence produces a temporary polarization of beliefs, but that disclosing unequivocal information eliminates the disagreement.

Keywords:

beliefs; ideology; cognition; disagreement; polarization

JEL-Classification:

D72; D81; D83; D84; Z13

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Discussion Paper No. 71
February 8, 2018

The Effect of Incentives in Non-Routine Analytical Team Tasks – Evidence From a Field Experiment

Authors:

Abstract:

Despite the prevalence of non-routine analytical team tasks in modern economies, little is known about how incentives influence performance in these tasks. In a field experiment with more than 3000 participants, we document a positive effect of bonus incentives on the probability of completion of such a task. Bonus incentives increase performance due to the reward rather than the reference point (performance threshold) they provide. The framing of bonuses (as gains or losses) plays a minor role. Incentives improve performance also in an additional sample of presumably less motivated workers. However, incentives reduce these workers' willingness to "explore" original solutions.

Keywords:

JEL-Classification:

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Discussion Paper No. 62
January 8, 2018

Size Matters – ‘Over’investments in a Relational Contracting Setting

Authors:

Abstract:

The corporate finance literature documents that managers tend to over-invest in their companies. A number of theoretical contributions have aimed at explaining this stylized fact, most of them focusing on a fundamental agency problem between shareholders and managers. The present paper shows that over-investments are not necessarily the (negative) consequence of agency problems between shareholders and managers, but instead might be a second-best optimal response to address problems of limited commitment and limited liquidity. If a firm has to rely on relational contracts to motivate its workforce, and if it faces a volatile environment, investments into general, non-relationship-specific, capital can increase the efficiency of a firm's labor relations.

Keywords:

JEL-Classification:

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