Decision Intervention: The Effect of Assigned Social Status

39 Pages Posted: 15 Aug 2011  

Eddy Cardinaels

KU Leuven; Tilburg University - Center and Faculty of Economics and Business Administration

Jan Bouwens

Amsterdam Business School

Date Written: August 15, 2011

Abstract

We examine whether individuals can defy their decision power if it is beneficial for them to do so. In an experiment we let principals make a decision whether to make their own investment decision, or to let their agent make that decision. While the principal can work out that the agent benefits from making the investment decision the principals would like him to make, we demonstrate that in more than 50 percent of the cases the principal rather loses money to assure that the decision she prefers is made than to let the agent make the same decision. This, however, is at odds with the real actions of the agents who select the course of actions preferred by the principal in almost 74% of the cases. We argue social status, derived from their decision authority, leads principals to prefer making their own decisions even if they have to incur a cost to follow their inclination. In addition we show that the label of 'CEO' or 'Divisional manager' does not prompt these individuals to assume this social status. It is the mere fact that they have the opportunity to make the investment decision that leads them to have low trust in the capabilities of the other party to make the same decision rendering a higher profit to all parties.

Keywords: organization design, investment decisions, information asymmetry, social status

JEL Classification: D3, D81, D82, G31, L22, M4, M20, M21

Suggested Citation

Cardinaels, Eddy and Bouwens, Jan, Decision Intervention: The Effect of Assigned Social Status (August 15, 2011). AAA 2012 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1909771 or http://dx.doi.org/10.2139/ssrn.1909771

Eddy Cardinaels (Contact Author)

KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16326984 (Phone)

HOME PAGE: http://www.kuleuven.be/wieiswie/nl/person/00013472

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 134668231 (Phone)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=e.cardinaels

Jan Bouwens

Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 5257391 (Phone)

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