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The Control Premium: A Preference for Payoff Autonomy †

The Control Premium: A Preference for Payoff Autonomy † Abstract We document individuals' willingness to pay to control their own payoff. Experiment participants choose whether to bet on themselves or on a partner answering a quiz question correctly. Given participants' beliefs, which we elicit separately, expected-money maximizers would bet on themselves in 56.4 percent of the decisions. However, participants actually bet on themselves in 64.9 percent of their opportunities, reflecting an aggregate control premium. The average participant is willing to sacrifice 8 percent to 15 percent of expected asset earnings to retain control. Thus, agents may incur costs to avoid delegating, and studies inferring beliefs from choices may overestimate their results on overconfidence. (JEL C91, D12, D82, D83 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

The Control Premium: A Preference for Payoff Autonomy †

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Publisher
American Economic Association
Copyright
Copyright © 2014 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.6.4.138
Publisher site
See Article on Publisher Site

Abstract

Abstract We document individuals' willingness to pay to control their own payoff. Experiment participants choose whether to bet on themselves or on a partner answering a quiz question correctly. Given participants' beliefs, which we elicit separately, expected-money maximizers would bet on themselves in 56.4 percent of the decisions. However, participants actually bet on themselves in 64.9 percent of their opportunities, reflecting an aggregate control premium. The average participant is willing to sacrifice 8 percent to 15 percent of expected asset earnings to retain control. Thus, agents may incur costs to avoid delegating, and studies inferring beliefs from choices may overestimate their results on overconfidence. (JEL C91, D12, D82, D83 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2014

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