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Title:The effect of ambiguity aversion on reward scheme choice PDF Logo
Authors:Kellner, Christian
Riener, Gerhard
Issue Date:2012
Series/Report no.:DICE Discussion Paper 55
Abstract:We test the implications of ambiguity aversion in a principal-agent problem with multiple agents. Models of ambiguity aversion suggest that, under ambiguity, comparative compensation schemes may become more attractive than independent wage contracts. We test this by presenting agents with a choice between comparative reward schemes and independent contracts, which are designed such that under uncertainty about output distributions (that is, under ambiguity), ambiguity averse agents (and only those) should typically prefer comparative reward schemes, independent of their degree of risk aversion. We indeed find that the share of agents who choose the comparative scheme is higher under ambiguity than in the case of known output distributions.
Subjects:ambiguity aversion
comparative compensation schemes
Ellsberg urn
contract design
JEL:D01
D03
D81
M55
ISBN:978-3-86304-054-3
Document Type:Working Paper
Appears in Collections:DICE Discussion Paper, Düsseldorf Institute for Competition Economics (DICE)

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