Intervention (Hidden)
This investigation builds on a canonical principal-agent game described as follows. The Principal (P henceforth) first determines a wage offer for an Agent (A henceforth) based on the outcome (w50,w100). If the final outcome is 50, A receives the wage w50, and P receives (50-w50); if the final outcome is 100, A receives the wage w100, and P receives (100-w100). After A sees the offer, A can choose (i) whether to receive the offer and (ii) which action to take. If A chooses to reject the offer, both P and A receive 0. If A accepts, A can then choose either to take High effort action of Low effort action. High effort yields an 80% chance to get an outcome of 100 and a 20% chance to get an outcome of 50, while A needs to spend 20 as the cost. Low effort yields a 50% chance to get an outcome of either 100 or 50, while A needs to spend 13 as the cost. P cannot observe A's action directly.
We follow the Chen and Li (2009) grouping design to classify participants into two groups based on their preference for two famous artists, Paul Klee (1879-1940) and Wassily Kandinsky (1866-1944). There are seven rounds. For each round, subjects are asked to choose the preferred painting from a pair of paintings, one of which was painted by Klee and the other by Kandinsky. A participant who chooses four or more of Klee’s paintings will be classified into Group Klee; otherwise, he/her will be classified into Group Kandinsky. This classification will remain unchanged throughout the entire experiment. A participant will know which group they are in and the number of group members, as their screens display this information. To strengthen the group identity, we further ask the members of the same group to play 3 puzzles, where the group members can collaborate with a chat box.
Then we ask the subjects to play the principal-agent game as described. The subjects will be reminded whether they are paired with the same group, a different group, or an unknown group (not reminded), depending on the treatment condition of the session. We assume that the agents will do favors for the principals and are willing to choose high effort with a worse wage offer. Given this, the principals can take advantage of this and offer a lower price to agents of the same group.
To investigate the validity of this mechanism, we elicit the Agents' reaction when seeing offers from the Principals from the same/different/unknown group. Furthermore, we elicit the Principals' beliefs on how the Agents will react to see whether they exploit the behavior changes due to group identity. Lastly, to control the risk preference and other-regarding preference, we conduct a Holt-Laury style risk task and a dictator game.