Abstract

http://ssrn.com/abstract=1294096
 
 

References (40)



 


 



A Behavioral Account of Compensation Awarding Decisions


Claire I. Tsai


University of Toronto - Joseph L. Rotman School of Management

Christopher K. Hsee


University of Chicago - Booth School of Business

November 3, 2008

Journal of Behavioral Decision Making, Vol. 21, pp. 1-15, 2008

Abstract:     
Suppose an individual loses an irreplaceable object and someone else is at fault. How much should he be compensated? Normatively, compensation should equal the value (utility) to the victim. Our experiments demonstrate that compensation decisions often ignore value and are instead based on cost (how much the victim originally paid for the item) except when cost is zero. For example, we found that people awarded $200 for a destroyed item worth $500 to the victim if the cost was $200; however, they awarded $500 if the original cost was zero. We explain these phenomena in terms of lay scientism (the tendency to base decisions on objective factors) and discuss how the prevalent cost-based compensation rule hurts consumer welfare. Copyright # 2008 John Wiley & Sons, Ltd.

Number of Pages in PDF File: 15

Keywords: compensation, rationale, lay rationalism, rule, consumer welfare

JEL Classification: D81. D11, D12, D91

Accepted Paper Series


Download This Paper

Date posted: November 3, 2008 ; Last revised: December 10, 2008

Suggested Citation

Tsai, Claire I. and Hsee, Christopher K., A Behavioral Account of Compensation Awarding Decisions (November 3, 2008). Journal of Behavioral Decision Making, Vol. 21, pp. 1-15, 2008. Available at SSRN: http://ssrn.com/abstract=1294096

Contact Information

Claire I. Tsai
University of Toronto - Joseph L. Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416 946 3128 (Phone)
416 978 5433 (Fax)
HOME PAGE: http://www.rotman.utoronto.ca/facbios/viewFac.asp?facultyID=Claire.Tsai

Christopher K. Hsee (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Feedback to SSRN


Paper statistics
Abstract Views: 605
Downloads: 65
Download Rank: 197,129
References:  40

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.484 seconds