Introduction
Your choices in this experiment will affect your payoff. For this reason, it is important to read these instructions carefully. A quiz will follow after the instructions. Only participants who correctly answer all the questions in 4 attempts can participate in the study and receive the participation fee and the bonus.
In the study, you can earn points. At the end of the session, the points will be converted to USD at an exchange rate of 1 cent per two points (e.g., 200 points amount to 1 USD). The amount of points you earn depends on your choices and the choices of another participant.
You are going to do a task in a group of two participants. Each group of two participants will be referred to as “a company”. In each company, one participant is assigned the role of an employee and one participant is assigned the role of a supervisor. After participants have answered the instructions quiz, the computer uses a lottery to decide which of the participants are assigned the role of supervisor.
Because you will interact with another person, the main part of this study requires participation WITHOUT interruptions. Please don't spend more than two minutes without making a decision while interacting with the other participant in your company.
You will participate in 8 periods. You will interact with the same supervisor/employee for all the 8 periods. Only 1 of the 8 periods will be used as the Period that Counts. Only The Period that Counts will determine your payoff in this study. After all periods, the computer will randomly select one of the 8 periods to be the Period that Counts with equal probability. Therefore, you should treat each period like the Period that Counts. Next, we explain the decisions of the employee and the supervisor for each period.
The employee decides how many winning balls to buy
In each period, the employee has a salary of 360 points and the supervisor has a salary of 400 points.
Each period, one ball is randomly drawn from a bag (the draw is simulated randomly and fairly by the computer) to determine whether company profit is LOW or HIGH. Profit is HIGH if a winning ball is drawn. The supervisor’s payoff is higher when profit is HIGH. Specifically, in addition to the salary, the supervisor receives 70 points if profit is LOW or 190 points if profit is HIGH. The amount of winning balls inside the bag depends on employee choice.
Each period, the employee can spend a part of their salary to buy winning balls to put in the bag. The bag always contains a total of 10 balls. For every winning ball bought by the employee, a losing ball is taken out of the bag. The bag initially contains 2 winning balls and 8 losing balls. The employee can choose to do nothing (buy 0 winning balls) or buy up to 5 additional winning balls. Each winning ball costs the employee 20 points.
For example, if the employee chooses to buy 3 winning balls, there would be 5 winning balls and 5 losing balls in the bag, increasing the chance of a HIGH profit from 20% to 50%. The table below summarizes the employee’s choices.
| Winning balls bought by the employee | Cost to the employee | Winning balls in the bag | Chances of HIGH profit |
|---|---|---|---|
| 0 | 0 | 2 out of 10 | 20% |
| 1 | 20 | 3 out of 10 | 30% |
| 2 | 40 | 4 out of 10 | 40% |
| 3 | 60 | 5 out of 10 | 50% |
| 4 | 80 | 6 out of 10 | 60% |
| 5 | 100 | 7 out of 10 | 70% |
The supervisor decides the bonus for the employee
After the employee’s choice, the supervisor evaluates the performance of the employee. The supervisor observes whether the profit was HIGH or LOW and chooses how much bonus (between 0 and 200 points) their employee will receive. The supervisor does not observe how many winning balls the employee decided to buy.
{% endif %} {% if participant.vars.treatment_info == 1 %}After the employee’s choice, the supervisor evaluates the performance of the employee. The supervisor observes whether the profit was HIGH or LOW and how many winning balls the employee has decided to buy and chooses how much bonus (between 0 and 200 points) their employee will receive.
{% endif %} {% if participant.vars.treatment_info == 2 %}After the employee’s choice, the supervisor evaluates the performance of the employee. The supervisor observes how many winning balls the employee has decided to buy and chooses how much bonus (between 0 and 200 points) their employee will receive. The supervisor does not observe whether the profit was HIGH or LOW until after they have made the last bonus decision in period 8.
{% endif %}Supervisors do NOT pay for the bonus points themselves; they only decide how many bonus points the experimenters should give to employees. Below is an example of the report that a supervisor sees when he/she needs to award the bonus points to the employee.
{% if participant.vars.treatment_info == 0 %}
{% endif %}
{% if participant.vars.treatment_info == 1 %} 
{% endif %}
{% if participant.vars.treatment_info == 2 %} 
{% endif %}
The employee decides if they confront the supervisor
After the employee observes his/her bonus, the employee can reduce the payoff of the supervisor by confronting them. A confrontation affects the payoffs of both the supervisor and the employee. Specifically, a confrontation will reduce the supervisor's payoff by 30 points and the employee’s payoff by 10 points. The supervisor observes whether they were confronted or not.
The payoff summary
Employee Payoff for each period = salary – cost of buying winning balls + bonus– confrontation costs employee.
- Salary is 360 points every period
- cost of buying winning balls varies between 0 and 100 points and is decided by the employee
- bonus varies between 0 and 200 and is decided by the supervisor
- confrontation cost can either be 0 or 10 and is decided by the employee
Supervisor’s Payoff for each period = salary + compensation for profit – confrontation cost supervisor.
- Salary is 400 points every period
- compensation for profit is either 70 if profit is LOW or 190 if profit is HIGH. Employee choices and the random draw determine profit
- confrontation cost can either be 0 or 30 and is decided by the employee
Note that the supervisor’s payoff does not depend on the amount of bonus awarded to the employee.
Example of an employee’s payoff. In a period, an employee bought 3 winning balls, received a bonus of 140 and confronted the supervisor. The Payoff for that period will be:
Employee Payoff = 430 points = 360 (salary) – 60 (3*20, cost of buying winning balls) + 140 (bonus) – 10 (confrontation costs employee).
Example of a supervisor’s payoff. In a period, the profit was LOW and the employee confronted the supervisor. The Payoff for that period will be:
Supervisor Payoff = 440 points = 400 (salary) + 70 (compensation for profit) – 30 (confrontation costs supervisor).