First Place Loving And Last Place Loathing

Author : Jaesun Lee
Publisher :
ISBN 13 :
Total Pages : 324 pages
Book Rating : 4.:/5 (1 download)

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Download or read book Relative Status and Economic Behaviors written by Jaesun Lee and published by . This book was released on 2016 with total page 324 pages. Available in PDF, EPUB and Kindle. Book excerpt: Relative status naturally arises regarding some aspects whenever there are multiple agents. When it comes to economic factors such as performance and earnings, it often plays an important role by motivating and incentivizing agents. This essay attempts to investigate the effect of relative status feedback from various perspectives and explore its role in relation to effort provision, emotional well-being, and risk-taking behaviors. In Chapter 1, I investigate the impact of competitive environment on performance and psychological aspect. Competition is fostered in many domains to improve performance, but its psychological impacts on those involved - and thus their overall utility and well-being - have not yet received much attention in the literature. This chapter investigates the effect of competitive environments on effort provision and mood by conducting a lab experiment and on that basis proposing a simple model that incorporates mood in the utility function. The chapter also explores how past experiences affect people's preferences for competitive payment schemes. The results show that people exert greater effort when they work under competitive payment schemes such as piece-rate and rank-order tournament payments than fixed payments. In contrast, these competitive payment schemes, along with rank feedback, make people feel worse. In particular, people with low ranks suffer more as the working environment becomes more competitive. The findings provide evidence that competitive environments may be detrimental to some people in the left tail of the distribu- tion. Moreover, I finds that expected earnings play a more important role than mood in people's preferences for incentive schemes. The study contributes to the literature by introducing the psychological impact of competitive working environments and a potential role of mood in the discussion of preferences. Chapter 2 explores people's effort provision as a response to rank feedback. Rank-order relative-performance evaluation, in which pay, promotion and symbolic awards depend on the rank of workers in the distribution of performance, is ubiquitous. Whenever firms use rank-order relative-performance evaluation, workers receive feedback about their rank. Using a real-effort experiment, we aim to discover whether workers respond to the specific rank that they achieve. In particular, we leverage random variation in the allocation of rank among subjects who exerted the same effort to obtain a causal estimate of the rank response function that describes how effort provision responds to the content of rankorder feedback. We find that the rank response function is U-shaped. Subjects exhibit 'first-place loving' and 'last-place loathing', that is subjects work hardest after being ranked first or last. We discuss implications of our findings for the optimal design of firms' performance feedback policies, workplace organizational structures and incentives schemes. Lastly, Chapter 3 discusses the impact of relative performance feedback in the context of risk-taking environments. While relative performance feedback is quite common in the workplace involving risks, we do not know how risktaking behaviors alter as people receive relative performance feedback. In a lab experiment, I let people choose between a risk-free option and a risky option while manipulating the availability of relative performance feedback between the control and the treatment groups. I find that the provision of relative performance feedback lowers the probability of taking risks and this is mainly driven by people with middle and high ranks while there is no significant differences in risk taking between different rank groups. Further analysis with luck and expected earnings should be conducted for robustness checks.