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Self-Serving Biases: Evidence From A Simulated Labour Relationship

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  • Charness, Gary B
  • Haruvy, Ernan

Abstract

A self-serving bias occurs when people subconsciously alter their perceptions about what is fair or right in a manner that serves their own interests. Perceptions of what is “a fair day’s work for a fair wage†may well vary according to one’s role in the employment relationship. While it is clear that employee satisfaction affects job performance, and that wage affects employee satisfaction, it is not only the wage per se that determines morale, but also the perceived fairness of the received wage. Thus, it is useful to have agreement between the views of employers and employees. Some evidence from a laboratory experiment indicates these views differ significantly between participant “employers†and participant “employees.†We compare choices (hypothetical in the case of employers) for the amount of costly “effort†to provide in response to a wage that has been determined outside the employment relationship. In the field, managers must be aware of the relationship between fairness in compensation and employee morale as well as their own biases regarding the fairness reference point. Overcoming such biases requires a careful decision-making protocol in compensation decisions.

Suggested Citation

  • Charness, Gary B & Haruvy, Ernan, 1999. "Self-Serving Biases: Evidence From A Simulated Labour Relationship," University of California at Santa Barbara, Economics Working Paper Series qt1vs8w2k7, Department of Economics, UC Santa Barbara.
  • Handle: RePEc:cdl:ucsbec:qt1vs8w2k7
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    References listed on IDEAS

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    1. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    2. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 437-459.
    3. Daniel S. Hamermesh, 2001. "The Changing Distribution of Job Satisfaction," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 1-30.
    4. Michael R. Ransom & Gordon B. Dahl, 1999. "Does Where You Stand Depend on Where You Sit? Tithing Donations and Self-Serving Beliefs," American Economic Review, American Economic Association, vol. 89(4), pages 703-727, September.
    5. Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-1343, December.
    6. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
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    More about this item

    Keywords

    Experiment; fairness; labour relations; self-serving bias;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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