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Biased Information And Effort

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  • JULIE ROSAZ

Abstract

We study the impact of information manipulation by a principal on the agent's effort. In a context of asymmetric information at the principal's advantage, we test experimentally the principal's willingness to bias (overestimate or underestimate) the information she/he gives to her/his agent on her/his ability in order to motivate her/him to exert more effort. We find that (1) principals do bias information, and (2) agents trust the cheap‐talk messages they receive and adjust their effort accordingly. Therefore, biased messages improve both the agent's performance and thus the principal's profit. This, however, does not increase efficiency. We also find that overestimation occurs much more often than underestimation. Making the signal costly in an additional treatment reduces this effect. (JEL D83, C92, M12)

Suggested Citation

  • Julie Rosaz, 2012. "Biased Information And Effort," Economic Inquiry, Western Economic Association International, vol. 50(2), pages 484-501, April.
    • Handle: RePEc:bla:ecinqu:v:50:y:2012:i:2:p:484-501
    DOI: j.1465-7295.2010.00361.x
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    Cited by:

    1. Filippin, Antonio & Crosetto, Paolo, 2014. "A Reconsideration of Gender Differences in Risk Attitudes," IZA Discussion Papers 8184, Institute of Labor Economics (IZA).
    2. Rosaz, Julie & Villeval, Marie Claire, 2012. "Lies and biased evaluation: A real-effort experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 537-549.
    3. Kleine, Marco & Kube, Sebastian, 2015. "Communication and Trust in Principal-Team Relationships: Experimental Evidence," IZA Discussion Papers 8762, Institute of Labor Economics (IZA).
    4. Uwe Dulleck & Jonas Fooken & Yumei He, 2012. "Public Policy and Individual Labor Market Discrimination: An Artefactual Field Experiment in China," QuBE Working Papers 002, QUT Business School.
    5. Ertac, Seda & Koçkesen, Levent & Ozdemir, Duygu, 2016. "The role of verifiability and privacy in the strategic provision of performance feedback: Theory and experimental evidence," Games and Economic Behavior, Elsevier, vol. 100(C), pages 24-45.
    6. Uwe Dulleck & Jonas Fooken & Yumei He, 2020. "Hukou Status and Individual-Level Labor Market Discrimination: An Experiment in China," ILR Review, Cornell University, ILR School, vol. 73(3), pages 628-649, May.
    7. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, vol. 62(11), pages 3138-3160, November.
    8. Ertac, Seda & Gümren, Mert & Koçkesen, Levent, 2019. "Strategic feedback in teams: Theory and experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 1-23.

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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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