Studies show that people exhibit relative thinking: they are affected by relative price
differences even when these are irrelevant. The evidence is based on hypothetical-scenario
experiments in consumer-behavior contexts. A previous attempt to show relative thinking in the
context of mixed compensation schemes (which include a fixed payment and a pay-for-performance
payment) failed to document relative thinking (Azar, 2019). We replicate the main features of this
study, but now do find evidence for relative thinking. Subjects are offered to do real-effort tasks of
finding letters on pages and all of them are paid the same amount for every correct answer.
However, there are two versions that differ in the fixed payment that is added. Effort is lower when
the fixed payment is higher. This is explained by relative thinking: the higher fixed payment makes
the per-task payment seem smaller compared to it, and therefore results in less effort. This finding
has important implications because mixed compensation schemes are prevalent in many jobs, and
are also a common feature of experiments (a fixed show-up fee and a payment that depends on
performance). We also find some connection between the behavior in the experiment and the
decision-making style of the subjects (measured on scales of intuitive, rational, and spontaneous).
Subjects with more spontaneous decision-making style make less effort in the experiment. Subjects
with more intuitive decision-making style are less affected by relative thinking. Our study offers
the first demonstration of relative thinking in the context of mixed compensation schemes.
21 Dicembre 2023
The seminar will be held at 15.30 in Aula Marrama, VI floor Faculty of Economics