Don't Fear the Meter: How Longer Time Limits Yield Biased Preferences for Flat Fee Contracts

155 Pages Posted: 14 Sep 2019

See all articles by Indranil Goswami

Indranil Goswami

University at Buffalo, SUNY - Department of Marketing

Oleg Urminsky

University of Chicago - Booth School of Business

Date Written: December 1, 2018

Abstract

Time limits and deadlines are pervasive in organizational settings. Managers work under
time limits themselves and also manage time limits for others. While the motivational
effect of time limits on individual and group performance has been studied extensively,
little is known about how time limits shape people’s reasoning about others’ behavior and
decisions based on such reasoning. We investigate the effect of time limits on managers’
beliefs about productivity and consequent contract choices for hiring temporary workers
using incentive-compatible games. We find a biased preference among managers for
flat-fee (vs. time-metered) contracts, particularly under longer time limits, resulting in
lost earnings for managers. The sub-optimal contract choices occur because of a bias in
estimates of task completion time and are not explained by normative risk preferences or
information conveyed by time limits. The bias is observed regardless of whether task
quality is fixed or variable, and persists for experienced managers.

Keywords: Deadlines; Temporal Judgments; Employment Contracts; Flat Fee Bias

Suggested Citation

Goswami, Indranil and Urminsky, Oleg, Don't Fear the Meter: How Longer Time Limits Yield Biased Preferences for Flat Fee Contracts (December 1, 2018). Available at SSRN: https://ssrn.com/abstract=3448174 or http://dx.doi.org/10.2139/ssrn.3448174

Indranil Goswami

University at Buffalo, SUNY - Department of Marketing ( email )

Buffalo, NY
United States

HOME PAGE: http://https://mgt.buffalo.edu/faculty/academic-departments/marketing/faculty/indranil-goswami.html

Oleg Urminsky (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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