The effect of ambiguity aversion on reward scheme choice
The effect of ambiguity aversion on reward scheme choice
We test the implications of ambiguity aversion in a principal-agent problem with multiple agents. Models of ambiguity aversion suggest that, under ambiguity, comparative compensation schemes may become more attractive than independent wage contracts. We test this by presenting agents with a choice between comparative reward schemes and independent contracts, which are designed such that under uncertainty about output distributions (that is, under ambiguity), ambiguity averse agents should typically prefer comparative reward schemes, independent of their degree of risk aversion. We indeed find that the share of agents who choose the comparative scheme is higher under ambiguity.
Ambiguity aversion, Comparative compensation schemes, Contract design, Ellsberg urn
134-137
Kellner, Christian
4e2ed069-76c7-4084-a353-f56ee03e2094
Riener, Gerhard
05c11453-4695-40fe-a5b9-45152b1f3754
1 August 2014
Kellner, Christian
4e2ed069-76c7-4084-a353-f56ee03e2094
Riener, Gerhard
05c11453-4695-40fe-a5b9-45152b1f3754
Kellner, Christian and Riener, Gerhard
(2014)
The effect of ambiguity aversion on reward scheme choice.
Economics Letters, 125 (1), .
(doi:10.1016/j.econlet.2014.08.025).
Abstract
We test the implications of ambiguity aversion in a principal-agent problem with multiple agents. Models of ambiguity aversion suggest that, under ambiguity, comparative compensation schemes may become more attractive than independent wage contracts. We test this by presenting agents with a choice between comparative reward schemes and independent contracts, which are designed such that under uncertainty about output distributions (that is, under ambiguity), ambiguity averse agents should typically prefer comparative reward schemes, independent of their degree of risk aversion. We indeed find that the share of agents who choose the comparative scheme is higher under ambiguity.
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Published date: 1 August 2014
Keywords:
Ambiguity aversion, Comparative compensation schemes, Contract design, Ellsberg urn
Identifiers
Local EPrints ID: 412444
URI: http://eprints.soton.ac.uk/id/eprint/412444
ISSN: 0165-1765
PURE UUID: d57a95a8-4e1f-40c3-b0f1-a13cd684aa43
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Date deposited: 17 Jul 2017 13:46
Last modified: 16 Mar 2024 04:24
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Author:
Gerhard Riener
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