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What money can’t buy: The psychology of financial overcompensation

Author

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  • Haesevoets, Tessa
  • Van Hiel, Alain
  • Reinders Folmer, Chris
  • De Cremer, David

Abstract

When a financial damage has been inflicted, perpetrators can satisfy victims’ outcome related concerns by providing a financial compensation. Few studies have investigated, however, whether overcompensation (i.e., compensation that is greater than the damage suffered) is more beneficial than equal compensation (i.e., compensation that covers the exact damage suffered). The results of four studies show that overcompensation offers no effects in addition to the impact of equal compensation, and that it even provokes negative outcomes. More specifically, overcompensation is attributed to occur because of a lower level of moral orientation on the part of the perpetrator (Study 2 through 4), leads to less favorable perceptions of the perpetrator (Study 2 and 4), and lower levels of trust in the perpetrator (Study 3 and 4) than equal compensation. No significant differences between overcompensation and equal compensation appeared for relationship preservation and cooperation (Study 4). These results show that while overcompensation may rebuild cooperation (albeit not more effectively than equal compensation), it does so at a monetary and relational cost that limits its effectiveness as a tool to promote true interpersonal trust. The present studies thus show that a large financial compensation does not provide any surplus value in terms of psychological outcomes and relationship continuation, even though such compensation best satisfies a victim’s economic needs.

Suggested Citation

  • Haesevoets, Tessa & Van Hiel, Alain & Reinders Folmer, Chris & De Cremer, David, 2014. "What money can’t buy: The psychology of financial overcompensation," Journal of Economic Psychology, Elsevier, vol. 42(C), pages 83-95.
    • Handle: RePEc:eee:joepsy:v:42:y:2014:i:c:p:83-95
    DOI: 10.1016/j.joep.2014.02.001
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    2. Janne Doorn & Marcel Zeelenberg & Seger M. Breugelmans, 2018. "An exploration of third parties’ preference for compensation over punishment: six experimental demonstrations," Theory and Decision, Springer, vol. 85(3), pages 333-351, October.
    3. Bicchieri, Cristina & Maras, Marta, 2022. "Intentionality matters for third-party punishment but not compensation in trust games," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 205-220.
    4. Tessa Haesevoets & Alain Van Hiel & Mario Pandelaere & Dries H. Bostyn & David De Cremer, 2017. "How much compensation is too much? An investigation of the effectiveness of financial overcompensation as a means to enhance customer loyalty," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 12(2), pages 183-197, March.

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    More about this item

    Keywords

    Financial overcompensation; Fairness; Equality; Trust; Cooperation;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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