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.