Abstract
Falk and Kosfeld (Am Econ Rev 96(5):1611–1630, 2006) use a modified dictator game to identify the “Hidden Costs of Control”, which occur as the majority of agents reduce their performance when a minimum performance level is enforced by the principal. In a modified experiment, we analyze the agent behavior when the principals’ choice set consists of a positive and a negative indirect constraint instead of a no constraint and a strict direct constraint alternative. Contrary to the findings of Falk and Kosfeld (Am Econ Rev 96(5):1611–1630, 2006) and other literature that suggests inferiority of negative incentives, our results show that if an indirect constraint is implemented, the negative incentive is more effective than the positive. There is consensus about the principal behavior, however. In both experiments, the majority anticipates the agent behavior correctly and chooses the alternative that leads to higher performance. Additionally, we analyze the development of norms but do not find significant evidence.
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Notes
- 1.
Full name: “Dodd-Frank Wall Street Reform and Consumer Protection Act”.
- 2.
Under the strategy method, the agent responses to every (two in this case) alternative is surveyed. Apart from an interpersonal comparison, it also allows an intrapersonal analysis even if a one shot game is conducted.
- 3.
The ECUs are worth actual money and are paid in euro at the end of the experiment by a fixed exchange rate.
- 4.
Standard Theory for Falk and Kosfeld (2006): Agents choose x = max { 0; \(\underline x\) }; principals always control.
- 5.
The instructions use neutral terms. For instance, a principal is called participant A and an agent participant B. In addition, the principals’ options are framed neutral as remuneration scheme 1 and remuneration scheme 2.
- 6.
Appendix 1
- 7.
Panel data models are appropriate because the same individuals make decisions over time. Both fixed and random effects models are identified. We conduct a Hausman test with the null hypothesis of the individual effects being uncorrelated with the other regressors. If not rejected, both models are consistent, but the random effects model is BLUE, consistent and asymptotically efficient and thus preferable. If rejected, the random effects model may provide biased and inconsistent estimates. The computed Hausman chi-square test statistic does not reject the hypothesis (Prob > chi2 = 0.8852). Due to this evidence, a random effects model is applied. For further information, see, e.g., Baltagi (2013) and Greene (2012).
- 8.
We tested for Period, Period2 and Period3. None of them was significant.
- 9.
No. 34 cannot be classified due to equivocal behavior. How the agents are divided into the Codes of Conduct is displayed in Appendix 2.
- 10.
We tested for Period, Period2 and Period3.
- 11.
The only exception is RS2 in session 2. Following fluctuation and a downward trend, the average transfer stabilizes at the level of x = 10 from period 7 onward.
- 12.
In addition, separately for RS1 (p < 0.1854) and RS2 (p < 0.1303), no statistical significance of the session is verifiable. A significant distinction of transfers between the sessions is neither observable within any single period nor beginning from any period toward the end.
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Rother, J., Schenk-Mathes, H. (2015). Direct and Indirect Constraints for Decision-Making and the Impact on Agent Behavior—An Experimental Analysis. In: Schenk-Mathes, H., Köster, C. (eds) Entscheidungstheorie und –praxis. Springer Gabler, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-46611-7_4
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