Biased Information and Effort
AbstractWe study the impact of information manipulation by a principal on the agent's effort. In a context of asymmetric information at the principal's advantage, we test experimentally the principal's willingness to bias (overestimate or under-estimate) the information she gives to her agent on his ability in order to motivate him to exert more effort. We find that i) principals do bias information, ii) agents trust the cheap-talk messages they receive and adjust their effort accordingly. Therefore, biased messages improve both the agent's performance and thus the principal's proﬁt. This, however, does not increase efficiency. We also ﬁnd that over-estimation occurs much more often than under-estimation. Making the signal costly in an additional treatment reduces this effect.
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Date of creation: 2012
Date of revision:
Publication status: Published, Economic Inquiry, 2012, 50, 2, pp. 484-501
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information ; feedback ; bias ; motivation ; experiment;
Other versions of this item:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executives; Executive Compensation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-30 (All new papers)
- NEP-CTA-2010-10-30 (Contract Theory & Applications)
- NEP-EXP-2010-10-30 (Experimental Economics)
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