| Managerial practice has been heavily influenced by agency theory, specifically through the adoption of the organizational controls prescribed by agency theory for dealing with the opportunism of employees. In this dissertation, I investigate how errors in a manager's judgments about the degree to which his or her employees behave opportunistically are maintained or corrected in the presence of feedback. Specifically, I posit that the feedback environment faced by managers typically exhibits asymmetric disconfirmation (Larrick and Wu, in press): errors in one direction (over-predicting employee opportunism) produce self-fulfilling results that inhibit their correction, whereas errors in the other direction (under-predicting employee opportunism) produce disconfirming evidence that facilitates their correction.; Three experiments examine the role of reciprocity in the employment relationship, and the effect of behavioral controls and monitoring on reciprocity. In one study monitoring is shown to undermine the voluntary cooperation of reciprocating individuals, leading them to behave as though they were purely self-interested. Thus a manager who anticipates self-interested behavior, and chooses to monitor his or her employees, will only receive feedback that confirms this belief. Two other studies put subjects in the role of the manager and demonstrate that, in fact, the use of monitoring inhibits subjects' ability to learn from feedback.; The final three experiments focus on the role of intrinsic motivation and the effects of pay-for-performance incentive schemes. Following in a long line of research in psychology (Deci, 1971; Lepper, Greene, & Nisbett, 1973), one study finds that the use of pay-for-performance schemes undermines intrinsic motivation. The result is that when paid for their performance, intrinsically motivated subjects' performance is nearly identical to that of subjects who are not intrinsically motivated. Thus a manager who anticipates his or her employees to behave in an effort-averse manner, and chooses a performance-based pay scheme, will fail to receive feedback disconfirming that belief. Two other studies again place subjects in the role of the manager, demonstrating that the use of performance-based pay inhibits those subjects' ability to learn from feedback. |
