We study whether poverty can induce affective states that decrease productivity. In a controlled laboratory setting, we find that subjects randomly assigned to a treatment, in which they view a video featuring individuals that live in extreme poverty, exhibit lower subsequent productivity compared to subjects assigned to a control treatment. Questionnaire responses, as well as facial recognition software, provide quantitative measures of the affective state evoked by the two treatments. Subjects exposed to images of poverty experience a more negative affective state than those in the control treatment. Further analyses show that individuals in a more positive emotional state exhibit less of a treatment effect. Also, those who exhibit greater attentiveness upon viewing the poverty video are less productive. The results are consistent with the notion that exposure to poverty can induce a psychological state in individuals that adversely affects productivity.
To boost employees’ performance, firms often offer monetary bonuses when production goals are reached. However, the available evidence indicates that the particular level at which a goal is set is critical to the effectiveness of this practice. Goals must be challenging yet achievable. Computing optimal goals when employees have private information about their own abilities may be impossible for an employer. To solve this problem, we propose a compensation scheme, in which workers set their own production goals and bonuses. We provide a simple model of self-chosen goals and test its predictions in the laboratory. The model predicts that (a) the self-chosen goal contract is more cost effective than a piece rate contract for an employer interested in attaining a desired level of output, and that (b) workers set goals that they systematically outperform. Our experimental data support both predictions. We also observe sharp gender differences in the experiment. The self-chosen goal contract increases the performance of men but not of women relative to a piece rate contract. Women set lower goals, but outperform them to a greater extent than men.
Download the current version here
“Contracting Probability Distortions”(Under Review)
I introduce a contract designed to take advantage of the regularity that individuals distort probabilities. With this contract, the principal could activate the probability distortions that are inherent in the agent and use these distortions to incentivize the agent to perform a relevant task. This is because in the contract, the principal could choose the probability that the agent’s compensation depends on his own performance on the task. Distortions of such probability generate higher or lower motivation to perform the task. A theoretical framework and an experiment demonstrate that the proposed contract yields higher output than a traditional contract when both contracts offer similar monetary incentives. However, the probability specified by the principal is critical to achieving this result. Small probabilities yield higher levels of performance, whereas medium or high probabilities yield no performance differences between the contracts. The degree to which individuals overweight small probabilities explains these findings.
“Social Status and Performance: Theory and Evidence”, CentER Discussion Paper Series No. 2016-032.
This paper investigates the causal effect of social status on performance. I propose that this relationship takes place through a psychological mechanism: status shapes an individual’s beliefs about her performance abilities and these beliefs are fulfilled. A theoretical framework serves two purposes. First, it provides the conditions over the preferences and the belief formation of the agent that guarantees the existence of such effect. Second, it predicts that social status will generate performance differences among the low ability individuals, but not for high ability individuals. Low ability individuals keep up with or lag behind the rest of the agents when assigned the high or low status, respectively. Data from two experiments corroborate these predictions. I also observe that the randomly assigned status treatments lead to differences in performance beliefs among the low ability participants, but not for the high ability participants. This suggests that social status induces self-fulfilling beliefs for the less skilled individuals.
Status: Draft coming soon!
Work in progress
“Evaluating Treatment effects and Replicability, with Karl Schlag.
We shed new light on replication studies of laboratory experiments in economics and recall largely ignored methodological problems in the current praxis of analyzing experimental data in economics. the basis of our investigation is a recent study by Camerer et al. (2016). Most of the papers therein refer to a treatment effect that cannot be identified with the test used. The replication study follows this tradition, thus unable to shed more light on whether the treatment effect actually exists. we re-investigate the original data sets and the replicated ones with correct tests that can uncover treatment effects. In particular, we comment on whether original findings exist and remain under the replication.
Status: Draft coming soon!
Status: Experimental design.
“Alternative theories of Risk and GARP” withWieland Muller
Status: Experimental design.
“Stratification, aspirations and self-concept: Evidence from Bogota with Francesco Bogliaccino
Status: Experimental Design