Is Honesty the Best Policy? An Experimental Study on the Honesty of Feedback in Employer-Employee Relationships

49 Pages Posted: 6 Sep 2006

See all articles by Alwine Mohnen

Alwine Mohnen

TUM School of Management; IZA Institute of Labor Economics

Kathrin Manthei

University of Cologne

Date Written: September 2006

Abstract

We theoretically and experimentally examine a situation in which the principal has better information about the agent's ability than the agent himself. The principal can inform the agent about his ability by giving him performance feedback but there might be incentives for her to lie about it. Analyzing a simple signaling model yields the following results. (1) The principal only tells the truth if there are sufficiently high costs of lying. (2) When the principal's marginal return on the agent's effort increases, deception is more likely to occur. We observed ambiguity, however, when testing these theoretical results in a lab experiment. On one hand, the data provide evidence indicating that subjects indeed suffer from costs of lying in this context. On the other hand, we do not find more deception with higher marginal return on the agents' effort for the principal. Instead we observe exactly the opposite pattern: higher marginal returns on the agents' effort lead to more honest principals.

Keywords: experiment, honesty, performance feedback

JEL Classification: M12, M2, M5

Suggested Citation

Mohnen, Alwine and Manthei, Kathrin, Is Honesty the Best Policy? An Experimental Study on the Honesty of Feedback in Employer-Employee Relationships (September 2006). Available at SSRN: https://ssrn.com/abstract=928416 or http://dx.doi.org/10.2139/ssrn.928416

Alwine Mohnen (Contact Author)

TUM School of Management ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Kathrin Manthei

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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