The Effects of Betrayal Aversion on Effort Provision When Incentives Are Fragile

Volker Benndorf (), Stephan Müller () and Holger A. Rau ()
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Volker Benndorf: Department of Economics, Goethe-Universität Frankfurt, 60323 Frankfurt am Main, Germany
Stephan Müller: Department of Economics, Platz der Göttinger, 37073 Göttingen, Germany
Holger A. Rau: Department of Economics, Platz der Göttinger, 37073 Göttingen, Germany

Management Science, 2024, vol. 70, issue 11, 7750-7769

Abstract: This paper studies the impact of betrayal aversion on employees’ effort provision in exchange for a bonus payment that is at the employers’ expense and discretion. In our first study, using a laboratory experiment, we find that the performance of an employee with average betrayal aversion is lower by more than 15% relative to betrayal-neutral employees. Inspired by the findings, we theoretically identify a tradeoff for the effort provision of betrayal-averse employees. That is, higher effort not only increases the level of betrayal when the bonus is not paid, but it also increases the chances to receive a bonus avoiding betrayal. In a second study, we confirm our findings in an online labor market. The data also find support for the identified tradeoff. In a third study, we manipulate employees’ beliefs about the chances of receiving the bonus to provide causal evidence for the tradeoff.

Keywords: betrayal aversion; promises; real effort; principal-agent problem; experiment (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:11:p:7750-7769

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