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Fool Me Once: An Experiment on Credibility and Leadership

Author

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  • David J Cooper
  • John R Hamman
  • Roberto A Weber

Abstract

We investigate ‘social credibility’, a leader’s ability to convince followers that conditions are favourable and that others will follow the leader's advice. To do so, we study an experimental joint venture with three key properties: returns are uncertain, investments are complements, and investment is often more beneficial for the leader than the followers. The leader has private information about investment returns and can facilitate coordination through cheap-talk recommendations. We find that leaders manage social credibility by forgoing potentially profitable advice to invest, increasing the likelihood that subsequent recommendations are followed. We identify factors that affect the persistence of social credibility.

Suggested Citation

  • David J Cooper & John R Hamman & Roberto A Weber, 2020. "Fool Me Once: An Experiment on Credibility and Leadership," The Economic Journal, Royal Economic Society, vol. 130(631), pages 2105-2133.
    • Handle: RePEc:oup:econjl:v:130:y:2020:i:631:p:2105-2133.
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    File URL: http://hdl.handle.net/10.1093/ej/ueaa059
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    Cited by:

    1. Florian Englmaier & Stefan Grimm & Dominik Grothe & David Schindler & Simeon Schudy, 2021. "The Value of Leadership: Evidence from a Large-Scale Field Experiment," CESifo Working Paper Series 9273, CESifo.
    2. Jordi Brandts & David J. Cooper, 2020. "Managerial Leadership, Truth-Telling, and Efficient Coordination," Working Papers 1211, Barcelona School of Economics.

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