Award Winning Research: Is the “Winner-Take-All Principle” Becoming Obsolete?

Many competitions in life—from innovation races and the assignment of bonuses in the workplace to college admissions and sports—are organized as tournaments. Participants expend effort or other resources and are rewarded based on the ranking of their performance. Those trying the hardest do not always win. While ability certainly plays a role, a nontrivial component…

Ph.D. Spotlight: Experiments in Bureaucracy, Insurance, and Monetary Economics

Dr. Daniel Neal’s dissertation consists of a set of economic experiments in bureaucracy, insurance, and monetary economics. While they are eclectic in their subject matter, they all rely on the same basic foundation: good experimental methodology. In today’s world of economics, research can usually be divided into one of two categories; theory-based or empirical. Theory…

Credible Leadership: Insights from Experimental Economics

We are certainly not the first to show that managers must keep their workers happy, but this is often discussed as a compromise or deviation from what is best for the organization. We show that such behavior is in fact directly in line with an organization’s best interest in a large number of cases. It is rational to prioritize a leader’s social credibility, and such abilities deserve equal recognition in evaluating a manager’s effectiveness. A government leader’s knowledge of economic conditions will prove meaningless if they cannot convince independent firms to invest locally. Similarly, an executive’s analytical brilliance or creative insight into consumer markets may not lead to business success unless they are able to maintain followership among employees in many areas of their firm.

Do Bonuses Improve Employee Performance?

While a bonus can help to motivate through positive reciprocity, workers may come to expect a bonus in future interactions. Failing to pay an anticipated bonus may have counter-productive effects through negative reciprocity or reduced work morale. On the other hand, if managers are committed to employing discretionary bonuses transparently and in good faith, the twin forces of trust and reward may together create a powerful tool to help solve a fundamental managerial challenge.