Deception and Incentives: How Dishonesty Undermines Effort Provision
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.
|Date of creation:||Dec 2007|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Crawford, Vincent P., 2001.
"Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions,"
University of California at San Diego, Economics Working Paper Series
qt6k65014s, Department of Economics, UC San Diego.
- Vincent P. Crawford, 2003. "Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions," American Economic Review, American Economic Association, vol. 93(1), pages 133-149, March.
- Blume, Andreas, et al, 1998. "Experimental Evidence on the Evolution of Meaning of Messages in Sender-Receiver Games," American Economic Review, American Economic Association, vol. 88(5), pages 1323-1340, December.
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-864, October.
- Cai, Hongbin & Wang, Joseph Tao-Yi, 2006. "Overcommunication in strategic information transmission games," Games and Economic Behavior, Elsevier, vol. 56(1), pages 7-36, July.
- Sanchez-Pages, Santiago & Vorsatz, Marc, 2007.
"An experimental study of truth-telling in a sender-receiver game,"
Games and Economic Behavior,
Elsevier, vol. 61(1), pages 86-112, October.
- Santiago Sanchez-Pages & Marc Vorsatz, 2004. "An Experimental Study of Truth-Telling in a Sender-Receiver Game," ESE Discussion Papers 128, Edinburgh School of Economics, University of Edinburgh.
- Andrew Schotter & Keith Weigelt, 1992. "Asymmetric Tournaments, Equal Opportunity Laws, and Affirmative Action: Some Experimental Results," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 511-539.
- Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987.
"Tournaments and Piece Rates: An Experimental Study,"
Journal of Political Economy,
University of Chicago Press, vol. 95(1), pages 1-33, February.
- Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers 85-21, C.V. Starr Center for Applied Economics, New York University.
- Nina Mazar & Dan Ariely, 2006. "Dishonesty in everyday life and its policy implications," Working Papers 06-3, Federal Reserve Bank of Boston.
- Christine Harbring & Bernd Irlenbusch & Matthias Kräkel & Reinhard Selten, 2004. "Sabotage in Asymmetric Contests – An Experimental Analysis," Bonn Econ Discussion Papers bgse12_2004, University of Bonn, Germany.
- Jordi Brandts & Gary Charness, 2003. "Truth or Consequences: An Experiment," Management Science, INFORMS, vol. 49(1), pages 116-130, January.
- Crawford, Vincent P & Sobel, Joel, 1982.
"Strategic Information Transmission,"
Econometric Society, vol. 50(6), pages 1431-1451, November.
- Masaki Aoyagi, 2003.
"Information Feedback in a Dynamic Tournament,"
ISER Discussion Paper
0580, Institute of Social and Economic Research, Osaka University.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
- 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.
- Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, vol. 95(1), pages 384-394, March.
- Florian Ederer, 2010. "Feedback and Motivation in Dynamic Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 733-769, 09.
- John W. Dickhaut & Kevin A. McCabe & Arijit Mukherji, 1995. "An experimental study of strategicinformation transmission," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(3), pages 389-403.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp3200. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.