Outcome bias and risk taking in a principal agent setting

Last registered on March 07, 2022

Pre-Trial

Trial Information

General Information

Title
Outcome bias and risk taking in a principal agent setting
RCT ID
AEARCTR-0009044
Initial registration date
March 05, 2022

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
March 07, 2022, 2:02 PM EST

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

Locations

Region

Primary Investigator

Affiliation
Toulouse School of Economics

Other Primary Investigator(s)

Additional Trial Information

Status
In development
Start date
2022-03-10
End date
2022-03-30
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
I consider a setting of delegated risk taking. Agents choose between a first-order stochastically dominant and a dominated lotteries. Principals observe choices and outcomes and then decide whether to award a bonus payment to the agent. The goal of this experiment is to study whether outcome bias (OB), that is a tendency to condition bonus payments on outcomes, can shape the incentives faced by agent and thereby their choices. In particular, I seek to address the following research questions. 1) Can outcome bias in bonus payments induce incentives to choose ex-ante inferior lotteries? 2) Do agents adjust their choices accordingly, i.e. can outcome bias induce more choices of first-order stochastically dominated lotteries?
External Link(s)

Registration Citation

Citation
Loewenfeld, Moritz. 2022. "Outcome bias and risk taking in a principal agent setting." AEA RCT Registry. March 07. https://doi.org/10.1257/rct.9044
Experimental Details

Interventions

Intervention(s)
I will run a lab experiment.
A detailed description of the experimental design can be found in the document "Design_PAP.pfd".
Intervention Start Date
2022-03-10
Intervention End Date
2022-03-30

Primary Outcomes

Primary Outcomes (end points)
Principal's bonus decisions and agents' lottery choices.
A detailed description of the outcome variables and their construction can be found in the document "Design_PAP.pfd".
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
The experiment consists of three parts. In part I, agents make a number of decisions between two lotteries on behalf of the principals. Principals decide whether to award a bonus to the agent or not. In Part II, participants make a number of choices that include the social value orientation task and lottery choices for themselves. Part III consists of a questionnaire. For a detailed description of the experimental design, please refer to the document "Design_PAP.pfd".
Experimental Design Details
There are two treatments. In the OB treatment, principals observe both the outcome and the decision before deciding whether to award a bonus to the agent. In this treatment, principals make bonus decisions for all possible choice-outcome combinations (strategy method). In the no-OB (NOB) treatment, principals observe only the agents’ choices, but not their outcomes prior to the bonus decision. Whenever the bonus is not allocated to the agent matched to the principal for a given choice, it is allocated to another, randomly chosen, agent.

Each agent makes 8 repeated choices for each of the 4 lottery pairs. For each choice, they are anonymously matched with a principal, whose bonus decision specified for the particular scenario is implemented. Feedback is then provided regarding the realized payoff and the bonus decision of the principal.

For a detailed description of the experimental design, please refer to the document "Design_PAP.pfd".
Randomization Method
By computer.
Randomization Unit
The treatment is randomized at the session level. The role (principal or agent) is randomized at the participant level.
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
280 participants in a total of up to 31 sessions (depending on recruitment).
Sample size: planned number of observations
280 participants.
Sample size (or number of clusters) by treatment arms
140 participant in each of the two experimental conditions. 70 participants in each of the four cells (Agent, Principal)x(OB, NOB).
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials

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IRB

Institutional Review Boards (IRBs)

IRB Name
TSE Research Ethics Committee for Experimental Research
IRB Approval Date
2022-01-24
IRB Approval Number
N/A
Analysis Plan

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Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials