Benefit packages and individual behavior: choices over discrete goods with multiple attributes
AbstractManagers and employers use an array of rewards to attract and retain quality employees. An increasingly significant component of the overall compensation is the employee's benefits package. Flexible packages offer more choice but also incur higher decision costs. We conduct an experiment on choices over stylized benefits packages where discrete 'goods' have multiple attributes affecting the payoff function. We investigate the degree to which these complications affect choices. Eighty subjects play an individual-choice decision-cost game where they are implicitly asked to solve a complex programming problem. Our main results are that: (a) individual subjects respond to the relative tradeoff between the attributes, (b) some combinations of the attributes (apparently) entice subjects to search more and thus earn more, and (c) most subjects appear to adopt a heuristic that approximates the optimal solution. Further, subjects appear to value the right to make choices, as they rarely choose a fixed payoff option with a known payoff and low decision cost, even when the fixed payoff is 80% of the maximum possible under the decision-making task. Copyright © 2006 John Wiley & Sons, Ltd.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.
Volume (Year): 27 (2006)
Issue (Month): 6 ()
Contact details of provider:
Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May.
- Anabela Botelho & Glenn W. Harrison & Marc A. Hirsch & Elisabet E. Rutstrom, 2001. "Bargaining behavior, demographics and nationality: a reconsideration of the experimental evidence," NIMA Working Papers 16, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
- Glenn Harrison & John List, 2004.
Artefactual Field Experiments
00058, The Field Experiments Website.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- Elliott, Steven R & McKee, Michael, 1995. "Collective Risk Decisions in the Presence of Many Risks," Kyklos, Wiley Blackwell, vol. 48(4), pages 541-54.
- Vernon L. Smith, 1980. "Relevance of Laboratory Experiments to Testing Resource Allocation Theory," NBER Chapters, in: Evaluation of Econometric Models, pages 345-377 National Bureau of Economic Research, Inc.
- Hausman, Jerry A, 1978.
"Specification Tests in Econometrics,"
Econometric Society, vol. 46(6), pages 1251-71, November.
- Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
- Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-61, April.
- Jan Kmenta & James B. Ramsey, 1980. "Evaluation of Econometric Models," NBER Books, National Bureau of Economic Research, Inc, number kmen80-1.
- Irwin, Julie R, et al, 1998. "Payoff Dominance vs. Cognitive Transparency in Decision Making," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 272-85, April.
- Charness, Gary & Kuhn, Peter J., 2010.
"Lab Labor: What Can Labor Economists Learn from the Lab?,"
IZA Discussion Papers
4941, Institute for the Study of Labor (IZA).
- Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
- Gary Charness & Peter J. Kuhn, 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," NBER Working Papers 15913, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.