IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v218y2024icp568-578.html
   My bibliography  Save this article

Examining relative thinking in mixed compensation schemes: A replication study

Author

Listed:
  • Azar, Ofer H.
  • Voslinsky, Alisa

Abstract

Studies show that people exhibit relative thinking: they are affected by relative price differences even when these are irrelevant. The evidence is mostly based on hypothetical-scenario experiments in consumer-behavior contexts. A previous attempt to show relative thinking in the context of mixed compensation schemes (which include a fixed payment and a pay-for-performance payment) failed to document relative thinking (Azar, 2019). We replicate the main features of this study, but now do find evidence for relative thinking. Subjects are offered to do real-effort tasks of finding letters on pages and all of them are paid the same amount for every correct answer. However, there are two versions that differ in the fixed payment that is added. Effort is lower when the fixed payment is higher. This is explained by relative thinking: the higher fixed payment makes the per-task payment seem smaller compared to it, and therefore results in less effort. This finding has important implications because mixed compensation schemes are prevalent in many jobs and are also a common feature of experiments (a fixed show-up fee and a payment that depends on performance). We also find some connection between the behavior in the experiment and the decision-making style of the subjects (measured on scales of intuitive, rational, and spontaneous). Subjects with more spontaneous decision-making style make less effort in the experiment. Subjects with more intuitive decision-making style are less affected by relative thinking. Our study offers the first demonstration of relative thinking in the context of mixed compensation schemes.

Suggested Citation

  • Azar, Ofer H. & Voslinsky, Alisa, 2024. "Examining relative thinking in mixed compensation schemes: A replication study," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 568-578.
  • Handle: RePEc:eee:jeborg:v:218:y:2024:i:c:p:568-578
    DOI: 10.1016/j.jebo.2024.01.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167268124000015
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jebo.2024.01.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Replication; Relative thinking; Compensation schemes; Decision-making styles; Pay-for-performance; Heuristics and biases;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    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:eee:jeborg:v:218:y:2024:i:c:p:568-578. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    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.