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.
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“Contracting Probability Distortions”
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 shows that individual performance in relevant and profitable tasks is affected by the social status to which individuals belong. I propose that such influence takes place through a psychological mechanism and, as a result, occurs above and beyond the material constraints that are inherent to social status. Specifically, belonging to higher social status grants individuals the access to better beliefs about their abilities, and these beliefs are crucial to performance. A theoretical framework formalizes the proposed mechanism. Two laboratory experiments show that individuals exhibit higher performance as well as higher beliefs about their own performance when assigned to a high rather than to a low status treatment. These results are robust to the provision of feedback about relative and absolute performance. Such dependence of performance with respect to social status corroborates the validity of the proposed theory against alternative explanations.
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!
- “Group decision-making and GARP” with Wieland Muller
Status: Experimental design.
- “Alternative theories of Risk and GARP” with Wieland Muller
Status: Experimental design.
- “Stratification, aspirations and self-concept: Evidence from Bogota with Francesco Bogliaccino
Status: Experimental Design