Self-Serving Biases: Evidence from a Simulated Labor Relationship

Universitat Pompeu Fabra, Economics Working Paper No. 370

16 Pages Posted: 16 May 2002

See all articles by Gary Charness

Gary Charness

University of California, Santa Barbara (UCSB) - Department of Economics

Ernan Haruvy

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: December 1999

Abstract

A self-serving bias occurs when people subconsciously alter their perceptions about what is fair or right in a manner that serves their own interests. Perceptions of what is "a fair day's work for a fair wage" may well vary according to one's role in the employment relationship. While it is clear that employee satisfaction affects job performance, and that wage affects employee satisfaction, it is not only the wage per se that determines morale, but also the perceived fairness of the received wage. Thus, it is useful to have agreement between the views of employers and employees. Some evidence from a laboratory experiment indicates these views differ significantly between participant "employers" and participant "employees." We compare choices (hypothetical in the case of employers) for the amount of costly "effort" to provide in response to a wage that has been determined outside the employment relationship. In the field, managers must be aware of the relationship between fairness in compensation and employee morale as well as their own biases regarding the fairness reference point. Overcoming such biases requires a careful decision-making protocol in compensation decisions.

Keywords: Experiment; fairness; labour relations; self-serving bias

JEL Classification: A13, C91, J41, M12

Suggested Citation

Charness, Gary and Haruvy, Ernan, Self-Serving Biases: Evidence from a Simulated Labor Relationship (December 1999). Universitat Pompeu Fabra, Economics Working Paper No. 370. Available at SSRN: https://ssrn.com/abstract=163268 or http://dx.doi.org/10.2139/ssrn.163268

Gary Charness (Contact Author)

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States
805-893-2412 (Phone)
805-893-8830 (Fax)

Ernan Haruvy

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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