With Risk Comes Reward

Last registered on December 23, 2023

View Trial History

Pre-Trial

Trial Information

General Information

Title

With Risk Comes Reward

RCT ID

AEARCTR-0011326

Initial registration date

April 24, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published

May 03, 2023, 4:01 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated

December 23, 2023, 11:56 AM EST

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Country

Denmark

Region

Country

Finland

Region

Country

France

Region

Country

Iceland

Region

Country

Netherlands

Region

Country

Norway

Region

Country

Sweden

Region

Country

United States of America

Region

Primary Investigator

Name

Simon Siegenthaler

Affiliation

University of Texas at Dallas

Contact Primary Investigator

Other Primary Investigator(s)

PI Name

Nikos Nikiforakis

PI Affiliation

PI Name

Aurelie Dariel

PI Affiliation

Additional Trial Information

Status

Completed

Start date

2023-05-04

End date

2023-08-09

Keywords

Behavior, Lab

Additional Keywords

Inequality, Leadership, Risk

JEL code(s)

Secondary IDs

Prior work

This trial does not extend or rely on any prior RCTs.

Abstract

Pay inequality within companies is rising in modern economies. We design a lab and online experiment to examine team performance when leaders outearn their team members. We show that pay inequality causally undermines the ability of leaders to coordinate their teams (via leading by example), causing bad team performance despite aligned financial incentives. We then study whether exposing leaders to higher risk—measured by the cost they suffer when the team performs poorly—can justify inequality. We find that increased leader risk raises the perceived legitimacy of pay inequality. Remarkably, leaders anticipate the teams’ greater willingness to follow, which is necessary for teams to do well.

External Link(s)

Registration Citation

Citation

Dariel, Aurelie, Nikos Nikiforakis and Simon Siegenthaler. 2023. "With Risk Comes Reward." AEA RCT Registry. December 23. https://doi.org/10.1257/rct.11326-1.2

Sponsors & Partners

Experimental Details

Interventions

Intervention(s)

Intervention Start Date

2023-05-04

Intervention End Date

2023-08-09

Primary Outcomes

Primary Outcomes (end points)

Percentage of orange choices (overall)
Percentage of orange choices (conditional on the leader choosing orange)
Relationship between risk aversion, inequality aversion (+expectations), conformity, and the percentage of orange choices
Differences in these variables between US and Nordic Countries subjects

Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

We consider 1 treatment without a leader and 5 treatments with a first-mover. In all treatments, the safe payoff is $4 for everyone. In all treatments, the two other group members have a LowPayoff of $2.75 and a HighPayoff of $4.75. The treatments vary in the incentives of the leader.

Change: After collecting these treatments, we decided to add one more treatment to obtain a more complete picture of the effect of leader risk. Specifically, we look also at the case when the leader earns no bonus but also has no risk.

Experimental Design Details

Randomization Method

Randomization done by the computer software: as the participants complete the experiment online, we will always assign the treatment with the lowest number of observations.

Randomization Unit

Individual

Was the treatment clustered?

Experiment Characteristics

Sample size: planned number of clusters

1400 individuals (independent observations)

Sample size: planned number of observations

1400 individuals

Sample size (or number of clusters) by treatment arms

7 Treatments with about 100 subjects in the US.
7 Treatments with about 100 subjects in the Nordic Countries, or as much as possible given limited availability.

Update: We have collected about half of the observations for the Nordic countries. Due to limited liquidity, we will now also include people from the Netherlands and France. The rationale is that these countries are geographically near the Nordic countries (EU), have Gini coefficients similar to the Nordic countries, and are sufficiently large so we are able to collect the remaining observations.

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Supporting Documents and Materials

IRB