The Hidden Advantage of Promises: Pareto Improvements in a Gift-Exchange Game

The interventions include "claim and promise" and "real effort".

2018-11-07

2018-11-09

effort level, wage level, final payoff, the number of correct sums

In this experiment, we have one baseline and three treatments. The baseline is the basic gift-exchange game. The three treatments are "claim and promise", "real effort-baseline", "real effort-claim and promise"

Treatment: C&P
At the beginning of the experiment each subject is randomly assigned to a role (employer or employee). We only have one period in our experiment.
Stage 1: The worker decides whether to make a “claim and promises” or not:
“If the employer gives me the wage=_____, I will choose the effort level=___”
This claim and promises is non-binding.
Stage 2: a) After reviewing the worker’s decision, the firm chooses the wage level, w;
b) The firm also announces a non-binding effort level, that he wants the worker to do.
Stage 3: The worker has to choose his effort level, e, after he reviews the wage level set by the firm.

Baseline: The only difference from C&P is that there is no stage 1, and the firm chooses the wage level directly.

Treatment: Real Effort and C&P
In this treatment, the difference from C&P is that subjects need to provide real effort, which consists of adding up sets of five two-digit numbers during two minutes.
Before stage 1, there is a practice stage in this treatment. Each subject will receive $0.5 for each correct answer. Employees will be notified their performance and the median performance of the session before they start the experiment. Employers will only be notified the median performance of the session.
The effort level becomes the number of correct answers to the additions, s. Thus, in stage 1, the “claim and promises” becomes “If the firm gives me the wage=_____, I will solve ___ correct sums”; and in stage 2, the employer announces a non-binding number of correct additions ; the payoff functions are: ΠF = (120 - w) * (s/10); ΠW = w - 20

Treatment: Real effort baseline
This treatment is the same as the treatment "real effort C&P" except that there is no stage 1. Employers will directly choose the wage level after the practice stage.

randomization by a computer

individual

No

264 subjects

264

60 baselien, 60 real effort-baseline, 72 claim and promise, 72 real effort-cliam and promise