Incentives and Information as Driving Forces of Default Effects

Incentives and Information as Driving Forces of Default Effects

Date: 2013-09
By: Altmann, Steffen (IZA)
Falk, Armin (University of Bonn)
Grunewald, Andreas (University of Bonn)
The behavioral relevance of non-binding default options is well established. While most research has focused on decision makers’ responses to a given default, we argue that this individual decision making perspective is incomplete. Instead, a comprehensive understanding of the foundation of default effects requires taking account of the strategic interaction between default setters and decision makers. We provide a theoretical framework to analyze which default options arise in such interactions, and which defaults are more likely to affect behavior. The key drivers are the relative level of information of default setters and decision makers, and their alignment of interests. We show that default effects are more pronounced if interests of the default setter and decision makers are more closely aligned. Moreover, decision makers are more likely to follow default options the less they are privately informed about the relevant decision environment. In the second part of the paper we experimentally test the main predictions of the model. We report evidence that both the alignment of interests as well as the relative level of information are key determinants of default effects. An important policy relevant conclusion is that potential distortions arising from default options are unlikely if decision makers are either well-informed or reflect on the interests of default setters.
Keywords: default options, libertarian paternalism, behavioral economics, incentives, laboratory experiment
JEL: D03

Sabotage in Tournaments: Evidence from a Laboratory Experiment

yinung: 哈哈… 怠工 (工作偷懶) 行為被標籤化, 可以降低怠工?
Christine Harbring and Bernd Irlenbusch (2011) “Sabotage in Tournaments: Evidence from a Laboratory Experiment," Management Science, 57, 4 :611-627.; DOI: 10.1287/mnsc.1100.1296 ; (full PDF)

==original Abstract==

Although relative performance schemes are pervasive in organizations, reliable empirical data on induced sabotage behavior are almost nonexistent. We study sabotage (怠工,破壞活動,破壞(vi.)從事破壞活動(vt.)妨害,破壞) in repeated tournaments in a controlled laboratory experiment and observe that effort and sabotage are higher for higher wage spreads. Additionally, we find that also in the presence of tournament incentives, agents react reciprocally to higher wages by exerting higher effort. Destructive activities are reduced by explicitly calling them by their name “sabotage.” Communication among principal and agents can curb sabotage when they agree on flat prize structures and increased output. If sabotage is not possible, the principals choose tournament incentives more often.

 ==cited by==

(2012) “Competition Between Organizational Groups: Its Impact on Altruistic and Antisocial Motivations." Management Science May 2012 vol. 58 no. 5 948-960.

 ==maybe related==

Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics

Date: 2011-05
By: Abeler, Johannes (University of Nottingham)
Altmann, Steffen (IZA)
Goerg, Sebastian (Max Planck Institute for Research on Collective Goods)
Kube, Sebastian (University of Bonn)
Wibral, Matthias (University of Bonn)
In this paper, we discuss recent evidence from economic experiments that study the impact of social preferences on workplace behavior. We focus on situations in which a single employer interacts with multiple employees. Traditionally, equity and efficiency have been seen as opposing aims in such work environments: individual pay-for-performance schemes maximize efficiency but might lead to inequitable outcomes. We present findings from laboratory experiments that show under which circumstances partially incomplete contracts can create equitable work environments while at the same time reaching surprisingly efficient outcomes.
Keywords: incentives, wage setting, equity, gift exchange, reciprocity, incomplete contracts, organizational economics, laboratory experiments
JEL: J33