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Deception and Incentives: How Dishonesty Undermines Effort Provision

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  • Ederer, Florian

    ()
    (MIT)

  • Fehr, Ernst

    ()
    (University of Zurich)

Abstract

In this paper we show that subtle forms of deceit undermine the effectiveness of incentives. We design an experiment in which the principal has an interest in underreporting the true performance difference between the agents in a dynamic tournament. According to the standard approach, rational agents should completely disregard the performance feedback of self-interested principals and choose their effort level as if they had not been given any information. However, despite substantial underreporting many principals seem to exhibit lying aversion which renders their feedback informative. Therefore, the agents respond to the feedback but discount it strongly by reducing their effort relative to fully truthful performance feedback. Moreover, previous experiences of being deceived exacerbate the problem and eventually reduce average effort even below the level that prevails in the absence of any feedback. Thus, both no feedback and truthful feedback are better for incentives than biased feedback.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3200.

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Length: 53 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:iza:izadps:dp3200

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Related research

Keywords: deception; dishonesty; communication; cheap talk; dynamic tournaments;

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References

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  1. Christine Harbring & Bernd Irlenbusch & Matthias Kräkel & Reinhard Selten, 2004. "Sabotage in Asymmetric Contests – An Experimental Analysis," Bonn Econ Discussion Papers, University of Bonn, Germany bgse12_2004, University of Bonn, Germany.
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  3. Schotter, Andrew & Weigelt, Keith, 1990. "Asymmetric Tournaments, Equal Opportunity Laws And Affirmative Action: Some Experimental Result," Working Papers, C.V. Starr Center for Applied Economics, New York University 90-14, C.V. Starr Center for Applied Economics, New York University.
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  5. Nina Mazar & Dan Ariely, 2006. "Dishonesty in everyday life and its policy implications," Working Papers, Federal Reserve Bank of Boston 06-3, Federal Reserve Bank of Boston.
  6. Aoyagi, Masaki, 2010. "Information feedback in a dynamic tournament," Games and Economic Behavior, Elsevier, Elsevier, vol. 70(2), pages 242-260, November.
  7. Jordi Brandts & Gary Charness, 2003. "Truth or Consequences: An Experiment," Management Science, INFORMS, INFORMS, vol. 49(1), pages 116-130, January.
  8. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers, C.V. Starr Center for Applied Economics, New York University 85-21, C.V. Starr Center for Applied Economics, New York University.
  9. Sanchez-Pages, Santiago & Vorsatz, Marc, 2007. "An experimental study of truth-telling in a sender-receiver game," Games and Economic Behavior, Elsevier, Elsevier, vol. 61(1), pages 86-112, October.
  10. Cai, Hongbin & Wang, Joseph Tao-Yi, 2006. "Overcommunication in strategic information transmission games," Games and Economic Behavior, Elsevier, Elsevier, vol. 56(1), pages 7-36, July.
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  12. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  13. Joseph Tao-yi Wang & Michael Spezio & Colin F. Camerer, 2006. "Pinocchio's Pupil: Using Eyetracking and Pupil Dilation to Understand Truth-telling and Deception in Games," Levine's Bibliography 321307000000000042, UCLA Department of Economics.
  14. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1431-51, November.
  15. Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 384-394, March.
  16. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 841-64, October.
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Citations

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Cited by:
  1. Bin R. Chen & Y. Stephen Chiu, 2013. "Interim Performance Evaluation in Contract Design," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 123, pages 665-698, 06.
  2. Eriksson, Tor & Poulsen, Anders & Villeval, Marie Claire, 2008. "Feedback and Incentives: Experimental Evidence," IZA Discussion Papers 3440, Institute for the Study of Labor (IZA).
  3. Ghazala Azmat & Nagore Iriberri, 2010. "The provision of relative performance feedback information: An experimental analysis of performance and happiness," Economics Working Papers 1216, Department of Economics and Business, Universitat Pompeu Fabra.
  4. List, John A. & Rasul, Imran, 2011. "Field Experiments in Labor Economics," Handbook of Labor Economics, Elsevier, Elsevier.
  5. Azmat, Ghazala & Iriberri, Nagore, 2010. "The importance of relative performance feedback information: Evidence from a natural experiment using high school students," Journal of Public Economics, Elsevier, Elsevier, vol. 94(7-8), pages 435-452, August.
  6. 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.
  7. Ghazala Azmat & Nagore Iriberri, 2009. "The importance of relative performance feedback information: evidence from a natural experiment using high school students," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 28520, London School of Economics and Political Science, LSE Library.
  8. Belot, Michèle & Bhaskar, V. & van de Ven, Jeroen, 2010. "Promises and cooperation: Evidence from a TV game show," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 73(3), pages 396-405, March.

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