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Benefit packages and individual behavior: choices over discrete goods with multiple attributes

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Author Info
Mark Van Boening (Department of Economics, University of Mississippi, Holman Hall 373, University, MS 38677, USA)
Tanja F. Blackstone (Navy Personnel Research, Studies and Technology, 5720 Integrity Drive, Millington, TN 38054-5026, USA)
Michael McKee (College of Business, University of Tennessee, Knoxville, TN 37996, USA)
Elisabet Rutstrom (Department of Economics, College of Business, University of Central Florida, Orlando, FL 32816-1400, USA)

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Abstract

Managers 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.

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File URL: http://hdl.handle.net/10.1002/mde.1285
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 27 (2006)
Issue (Month): 6 ()
Pages: 511-526
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:wly:mgtdec:v:27:y:2006:i:6:p:511-526

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Irwin, Julie R, et al, 1998. "Payoff Dominance vs. Cognitive Transparency in Decision Making," Economic Inquiry, Oxford University Press, vol. 36(2), pages 272-85, April.
  2. Elliott, Steven R & McKee, Michael, 1995. "Collective Risk Decisions in the Presence of Many Risks," Kyklos, Blackwell Publishing, vol. 48(4), pages 541-54.
  3. 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. [Downloadable!] (restricted)
  4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  5. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  6. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May. [Downloadable!] (restricted)
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