The Control Premium: A Preference for Payoff Autonomy

David Owens (), Zachary Grossman and Ryan Fackler

University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: We document a lower bound for thecontrol premium: agents' willingness to pay to control their own payoff. Participants choose between an asset that will pay only if they later answer a particular quiz question correctly and one that pays only if their partner answers a different question correctly. However, they first estimate the likelihood that each asset will pay off. Participants are 20% more likely to choose to control their payoff than a group of payoff-maximizers with accurate beliefs. While some of this deviation is explained by overconfidence, 34% of it can only be explained by the control premium. The average participant expresses a control premium equivalent to 8% to 15% of the expected asset-earnings. Our results show that even agents with accurate beliefs may incur costs to avoid delegating and suggest that to correctly infer beliefs from choices, one should account for the control premium.

Keywords: Social and Behavioral Sciences; experiment; principal-agent; overconfidence; control premium; desire for control; control; Delegation (search for similar items in EconPapers)
Date: 2012-03-14
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-hrm and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: The Control Premium: A Preference for Payoff Autonomy (2014)
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