Loukas Balafoutas

Affirmative action policies promote women and do not harm efficiency in the laboratory.

Girl Power The potential of affirmative action policies to reduce overall outcomes because of lower individual performance has been discussed widely and at length. But do quotas or preferential treatment of applicants alter the pool of candidates? Balafoutas and Sutter (p. 579; see the Perspective by Villeval) used an existing laboratory-based task to assess the change in composition of winning candidates and the overall outcome as a function of three affirmative action policies. Policies designed to encourage more women to enter a competitive environment served to recruit enough high-performing individuals to ensure that the efficiency in performing the task was preserved. Beaman et al. (p. 582, published online 12 January) examined the effects of a constitutionally mandated reservation of village-council and council-leader positions for women in West Bengal after two election cycles (1998 and 2003). The program appeared to narrow the gender gap in aspirations of parents for their children and of children for themselves; in addition, teenage girls spent more time in school and less on household chores. Beliefs and attitudes changed only after the second set of elections—that is, after a longer exposure to female role models—complementing the more rapid policy changes instituted by women council leaders after the first round of elections. Increasing the representation of competition-averse individuals does not alter overall output. Gender differences in choosing to enter competitions are one source of unequal labor market outcomes concerning wages and promotions. Given that studying the effects of policy interventions to support women is difficult with field data because of measurement problems and potential lack of control, we evaluated, in a set of controlled laboratory experiments, four interventions: quotas, where one of two winners of a competition must be female; two variants of preferential treatment, where a fixed increment is added to women’s performance; and repetition of the competition, where a second competition takes place if no woman is among the winners. Compared with no intervention, all interventions encourage women to enter competitions more often, and performance is at least equally good, both during and after the competition.

Direct and indirect punishment among strangers in the field

Significance Why do humans cooperate in one-time interactions with strangers? The most prominent explanations for this long-standing puzzle rely on punishment of noncooperators, but differ in the form punishment takes. In models of direct punishment, noncooperators are punished directly at personal cost, whereas indirect reciprocity assumes that punishment is indirect by withholding rewards. To resolve the persistent debate on which model better explains cooperation, we conduct the first field experiment, to our knowledge, on direct and indirect punishment among strangers in real-life interactions. We show that many people punish noncooperators directly but prefer punishing indirectly by withholding help when possible. The occurrence of direct and indirect punishment in the field shows that both are key to understanding the evolution of human cooperation. Many interactions in modern human societies are among strangers. Explaining cooperation in such interactions is challenging. The two most prominent explanations critically depend on individuals’ willingness to punish defectors: In models of direct punishment, individuals punish antisocial behavior at a personal cost, whereas in models of indirect reciprocity, they punish indirectly by withholding rewards. We investigate these competing explanations in a field experiment with real-life interactions among strangers. We find clear evidence of both direct and indirect punishment. Direct punishment is not rewarded by strangers and, in line with models of indirect reciprocity, is crowded out by indirect punishment opportunities. The existence of direct and indirect punishment in daily life indicates the importance of both means for understanding the evolution of cooperation.

Second‐Degree Moral Hazard in a Real‐World Credence Goods Market

Empirical literature on moral hazard focuses exclusively on the direct impact of asymmetric information on market outcomes, thus ignoring possible repercussions. We present a field experiment in which we consider a phenomenon that we call second-degree moral hazard – the tendency of the supply side in a market to react to anticipated moral hazard on the demand side by increasing the extent or the price of the service. In the market for taxi rides, our moral hazard manipulation consists of some passengers explicitly stating that their expenses will be reimbursed by their employer. This has an economically important and statistically significant positive effect on the likelihood of overcharging, with passengers in that treatment being about 13% more likely to pay higher-than-justified prices for a given ride. This indicates that second-degree moral hazard may have a substantial impact on service provision in a credence goods market.

Security of Property as a Public Good: Institutions, Socio-Political Environment and Experimental Behavior in Five Countries

We study experimentally the protection of property in five widely distinct countries— Austria, Mexico, Mongolia, South Korea and the United States. Our main results are that the security of property varies with experimental institutions, and that our subject pools exhibit significantly different behaviors that correlate with country-level property security, trust and quality of government. Subjects from countries with higher levels of trust or perceptions of safety are more prone to abstain initially from theft and devote more resources to production, and subjects from countries with higher quality political institutions are more supportive of protecting property through compulsory taxation. This highlights the relevance of socio-political factors in determining countries’ success in addressing collective action problems including safeguarding property rights.

The optimal allocation of prizes in tournaments of heterogeneous agents

Tournaments are widely used in organizations, explicitly or implicitly, to reward the best-performing employees, e.g., through promotion or bonuses, and/or to punish the worst-performing employees, e.g., through firing or unfavorable job assignments. We explore the impact of the allocation of prizes on the effectiveness of tournament incentive schemes. We show that while multiple prize allocation rules are equivalent when agents are symmetric in their ability, the equivalence is broken in the presence of heterogeneity. Under a wide range of conditions, punishment tournaments, i.e., tournaments that award a low prize to relatively few bottom performers, are optimal for the firm. The reason is that low-ability agents are discouraged less in punishment tournaments, and hence can be compensated less to meet their participation constraints.

Strive to be first or avoid being last: An experiment on relative performance incentives

Managers often use tournament incentive schemes which motivate workers to compete for the top, compete to avoid the bottom, or both. In this paper we test the effectiveness and efficiency of these incentive schemes. To do so, we utilize optimal contracts in a principal-agent setting, using a Lazear-Rosen type model that predicts equal effort and efficiency levels for three tournament incentive schemes: reward tournaments, punishment tournaments, and tournaments combining reward and punishment. We test the model s predictions in a laboratory experiment and find that the combination of reward and punishment produces the highest effort from agents, especially in contests of a relatively larger size. Punishment is shown to be more effective and, in larger contests, more efficient than rewards, and it is also the mechanism with the lowest variance of effort. Finally, we show that behavior in all mechanisms is consistent with a model of basic directional and reinforcement learning.

Altruistic punishment does not increase with the severity of norm violations in the field

The degree of human cooperation among strangers is a major evolutionary puzzle. A prominent explanation is that cooperation is maintained because many individuals have a predisposition to punish those violating group-beneficial norms. A critical condition for cooperation to evolve in evolutionary models is that punishment increases with the severity of the violation. Here we present evidence from a field experiment with real-life interactions that, unlike in lab experiments, altruistic punishment does not increase with the severity of the violation, regardless of whether it is direct (confronting a violator) or indirect (withholding help). We also document growing concerns for counter-punishment as the severity of the violation increases, indicating that the marginal cost of direct punishment increases with the severity of violations. The evidence suggests that altruistic punishment may not provide appropriate incentives to deter large violations. Our findings thus offer a rationale for the emergence of formal institutions for promoting large-scale cooperation among strangers.

Closing the gender gap in competitiveness through priming

Men have been observed to have a greater willingness to compete compared to women, and it is possible that this contributes to gender differences in wages and career advancement. Policy interventions such as quotas are sometimes used to remedy this but these may cause unintended side-effects. Here, we present experimental evidence that a simple and practically costless tool—priming subjects with power—can close the gender gap in competitiveness. While in a neutral as well as in a low-power priming situation men are much more likely than women to choose competition, this gap vanishes when subjects are primed with a high-power situation. We show that priming with high power makes competition entry decisions more realistic and also that it reduces the level of risk tolerance among male participants, which can help explain why it leads to a closing down of the gender gap in competitiveness.Men are often more willing to compete compared to women, which may contribute to gender differences in wages and career advancement. Here, the authors show that ‘power priming’ - encouraging people to imagine themselves in a situation of power - can close the gender gap in competitiveness.

Distributional preferences and ego depletion.

By means of a laboratory experiment with 508 participants, we study the impact of ego depletion on revealed distributional preferences. Subjects are exposed to a social preference identification procedure in 2 consecutive weeks. In the treatment intervention, they accomplish an ego-depletion task before being exposed to the procedure in 1 of the 2 weeks, and in the control intervention they accomplish a control task. Half of the subjects are exposed to the intervention in Week 1 and the other half in Week 2. Our design allows us to cleanly identify 3 separate effects on social preferences: (a) the effect of exposing subjects to the social preference identification procedure a second time, (b) the effect of the intervention per se, and (c) the effect of ego depletion in particular. We find that only the intervention per se has an effect on social preferences for some types, whereas the ego-depletion task does not have a significant effect compared with the control task, and preferences display a considerable degree of stability over time.

Incentives for dishonesty: An experimental study with internal auditors

We conduct an experiment with professional internal auditors and evaluate their performance and objectivity, measured as the extent to which they truthfully report the performance of other participants in a real-effort task. It has been suggested in the literature that incentive-based compensation for auditors has the potential to lead to dishonest behavior, for instance when their payoff depends on the performance of the unit they are auditing. In line with our hypotheses, we find that incentive-based compensation increases dishonest behavior among internal auditors: competitive incentives lead to under-reporting of other participants’ performance, while collective incentives lead to over-reporting of performance. In addition, we find that moving from an environment with objective performance evaluation towards a peer evaluation scheme reduces performance.