IDEAS home Printed from https://ideas.repec.org/a/aea/aejmic/v6y2014i4p138-61.html
   My bibliography  Save this article

The Control Premium: A Preference for Payoff Autonomy

Author

Listed:
  • David Owens Jr.
  • Zachary Grossman Jr.
  • Ryan Fackler Jr.

Abstract

We document individuals' willingness to pay to control their own payoff. Experiment participants choose whether to bet on themselves or on a partner answering a quiz question correctly. Given participants' beliefs, which we elicit separately, expected-money maximizers would bet on themselves in 56.4 percent of the decisions. However, participants actually bet on themselves in 64.9 percent of their opportunities, reflecting an aggregate control premium. The average participant is willing to sacrifice 8 percent to 15 percent of expected asset-earnings to retain control. Thus, agents may incur costs to avoid delegating and studies inferring beliefs from choices may overestimate their results on overconfidence.

Suggested Citation

  • David Owens Jr. & Zachary Grossman Jr. & Ryan Fackler Jr., 2014. "The Control Premium: A Preference for Payoff Autonomy," American Economic Journal: Microeconomics, American Economic Association, vol. 6(4), pages 138-161, November.
    • Handle: RePEc:aea:aejmic:v:6:y:2014:i:4:p:138-61
    Note: DOI: 10.1257/mic.6.4.138
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.6.4.138
    Download Restriction: no
    File URL: http://www.aeaweb.org/aej/mic/data/0604/2012-0164_data.zip
    Download Restriction: no
    File URL: http://www.aeaweb.org/aej/mic/app/0604/2012-0164_app.zip
    Download Restriction: no
    File URL: http://www.aeaweb.org/aej/mic/ds/0604/2012-0164_ds.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gary Charness & Uri Gneezy, 2010. "Portfolio Choice And Risk Attitudes: An Experiment," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 133-146, January.
    2. Björn Bartling & Urs Fischbacher, 2012. "Shifting the Blame: On Delegation and Responsibility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 67-87.
    3. Guillaume Hollard & Sébastien Massoni & Jean-Christophe Vergnaud, 2010. "Subjective beliefs formation and elicitation rules: experimental evidence," Documents de travail du Centre d'Economie de la Sorbonne 10088, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    4. Grether, David M., 1992. "Testing bayes rule and the representativeness heuristic: Some experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 17(1), pages 31-57, January.
    5. Ernst Fehr & Holger Herz & Tom Wilkening, 2013. "The Lure of Authority: Motivation and Incentive Effects of Power," American Economic Review, American Economic Association, vol. 103(4), pages 1325-1359, June.
    6. Erik Hoelzl & Aldo Rustichini, 2005. "Overconfident: Do You Put Your Money On It?," Economic Journal, Royal Economic Society, vol. 115(503), pages 305-318, April.
    7. Ulrike Malmendier & Geoffrey Tate, 2005. "CEO Overconfidence and Corporate Investment," Journal of Finance, American Finance Association, vol. 60(6), pages 2661-2700, December.
    8. Reinhard Selten, 1998. "Axiomatic Characterization of the Quadratic Scoring Rule," Experimental Economics, Springer;Economic Science Association, vol. 1(1), pages 43-61, June.
    9. Holt, Charles A. & Smith, Angela M., 2009. "An update on Bayesian updating," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 125-134, February.
    10. Theo Offerman & Joep Sonnemans & Gijs Van De Kuilen & Peter P. Wakker, 2009. "A Truth Serum for Non-Bayesians: Correcting Proper Scoring Rules for Risk Attitudes ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(4), pages 1461-1489.
    11. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
    12. Grossman, Zachary & Owens, David, 2012. "An unlucky feeling: Overconfidence and noisy feedback," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 510-524.
    13. Daniel J. Benjamin & Ori Heffetz & Miles S. Kimball & Alex Rees-Jones, 2012. "What Do You Think Would Make You Happier? What Do You Think You Would Choose?," American Economic Review, American Economic Association, vol. 102(5), pages 2083-2110, August.
    14. David Eil & Justin M. Rao, 2011. "The Good News-Bad News Effect: Asymmetric Processing of Objective Information about Yourself," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 114-138, May.
    15. Keith M. Marzilli Ericson, 2011. "Forgetting We Forget: Overconfidence And Memory," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 43-60, February.
    16. Edi Karni, 2009. "A Mechanism for Eliciting Probabilities," Econometrica, Econometric Society, vol. 77(2), pages 603-606, March.
    17. Grossman, Zachary & Oexl, Regine, 2011. "Delegating to a Powerless Intermediary: Does It Reduce Punishment?," University of California at Santa Barbara, Economics Working Paper Series qt0119d201, Department of Economics, UC Santa Barbara.
    18. John R. Hamman & George Loewenstein & Roberto A. Weber, 2010. "Self-Interest through Delegation: An Additional Rationale for the Principal-Agent Relationship," American Economic Review, American Economic Association, vol. 100(4), pages 1826-1846, September.
    19. Li Hao & Daniel Houser, 2010. "Getting It Right the First Time: Belief Elicitation with Novice Participants," Working Papers 1015, George Mason University, Interdisciplinary Center for Economic Science.
    20. Lucas C. Coffman, 2011. "Intermediation Reduces Punishment (and Reward)," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 77-106, November.
    21. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kai Barron, 2021. "Belief updating: does the ‘good-news, bad-news’ asymmetry extend to purely financial domains?," Experimental Economics, Springer;Economic Science Association, vol. 24(1), pages 31-58, March.
    2. Markus M. Möbius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2022. "Managing Self-Confidence: Theory and Experimental Evidence," Management Science, INFORMS, vol. 68(11), pages 7793-7817, November.
    3. Gary Charness & Ramón Cobo-Reyes & Juan A. Lacomba & Francisco Lagos & Jose Maria Perez, 2016. "Social comparisons in wage delegation: experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 19(2), pages 433-459, June.
    4. Ambuehl, Sandro & Li, Shengwu, 2018. "Belief updating and the demand for information," Games and Economic Behavior, Elsevier, vol. 109(C), pages 21-39.
    5. Lucas C. Coffman & Alexander Gotthard-Real, 2019. "Moral Perceptions of Advised Actions," Management Science, INFORMS, vol. 65(8), pages 3904-3927, August.
    6. Bartling, Björn & Grieder, Manuel & Zehnder, Christian, 2017. "Competitive pricing reduces wasteful counterproductive behaviors," Journal of Public Economics, Elsevier, vol. 156(C), pages 34-47.
    7. De Chiara, Alessandro & Engl, Florian & Herz, Holger & Manna, Ester, 2022. "Control Aversion in Hierarchies," FSES Working Papers 527, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    8. Gawn, Glynis & Innes, Robert, 2021. "Machiavelli Preferences Without Blame: Delegating Selfish vs. Generous Decisions in Dictator Games," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).
    9. João V. Ferreira & Nobuyuki Hanaki & Benoît Tarroux, 2017. "On the Roots of the Intrinsic Value of Decision Rights: Evidence from France and Japan," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2017-11, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    10. Silvia Dominguez Martinez & Randolph Sloof, 2016. "Communication versus (Restricted) Delegation: An Experimental Comparison," Tinbergen Institute Discussion Papers 16-050/VII, Tinbergen Institute.
    11. Guillaume Hollard & Sébastien Massoni & Jean-Christophe Vergnaud, 2010. "Subjective beliefs formation and elicitation rules: experimental evidence," Documents de travail du Centre d'Economie de la Sorbonne 10088, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    12. Burdea, Valeria & Woon, Jonathan, 2022. "Online belief elicitation methods," Journal of Economic Psychology, Elsevier, vol. 90(C).
    13. Coutts, Alexander, 2019. "Testing models of belief bias: An experiment," Games and Economic Behavior, Elsevier, vol. 113(C), pages 549-565.
    14. Cacault, Maria Paula & Grieder, Manuel, 2019. "How group identification distorts beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 63-76.
    15. Randolph Sloof & Ferdinand von Siemens, 2015. "Decision Initiation, Decision Implementation, and the Allocation of Decision Rights," CESifo Working Paper Series 5509, CESifo.
    16. Gary Charness & Ramon Cobo-Reyes & Natalia Jimenez & Juan A. Lacomba & Francisco Lagos, 2012. "The Hidden Advantage of Delegation: Pareto Improvements in a Gift Exchange Game," American Economic Review, American Economic Association, vol. 102(5), pages 2358-2379, August.
    17. Peter H. Kriss & Roberto Weber, 2013. "Organizational formation and change: lessons from economic laboratory experiments," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 14, Edward Elgar Publishing.
    18. Ryan Oprea & Sevgi Yuksel, 2022. "Social Exchange of Motivated Beliefs," Journal of the European Economic Association, European Economic Association, vol. 20(2), pages 667-699.
    19. Cheung, Stephen L. & Johnstone, Lachlan, 2017. "True Overconfidence, Revealed through Actions: An Experiment," IZA Discussion Papers 10545, Institute of Labor Economics (IZA).
    20. Heger, Stephanie A. & Papageorge, Nicholas W., 2018. "We should totally open a restaurant: How optimism and overconfidence affect beliefs," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 177-190.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmic:v:6:y:2014:i:4:p:138-61. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.