After months of lockdown and working from home, employers are worried about whether their staff members can be trusted to do as much work as they do in the office.
They can find the answer in the work of Swiss economist Ernst Fehr. Fehr from the University of Zurich, now based at the Massachusetts Institute of Technology, has made his life’s work the study of the economics of fairness. Fehr is his own kind of odd contradiction, a champion wrestler fascinated by what makes for cooperation between people. He has conducted well-known studies demonstrating that people of the world are not only inherently generous, but also abhor unfairness, or what he terms ‘inequity aversion’.
Fehr himself discovered this natural impulse in human beings when he investigated how groups of people behave when securing employment contracts, usually using game theory.
Game theory is a branch of math used to model and predict the behavior and strategies of individuals and groups of individuals in specific pressurized circumstances. As the name suggests, game theory is worked out with elaborate games that require certain decisions by everyone involved.
Put someone in a tight spot, and see what comes naturally to him. It is used to model strategic interactions — what an individual does in response to the actions and choices of others when he or she is given a strictly limited set of choices and preferred outcomes. Most games also stack the deck, by making it easier to go for the selfish option. By placing individuals in certain social dilemmas, game theory essentially measures the human capacity for graciousness.
In one of Fehr’s studies, he gathered together a group of college students interested in making a little extra money and divided them into a group of “employers,” with the larger share of the group “the employees.” He arranged that the employers would make a contract with their employees to provide a certain amount of effort, for which they’d be paid a set amount. However, the employees would be paid their contracted amount no matter how much effort they put in, so the employee wouldn’t suffer any penalty if he didn’t abide by his contract.
Furthermore, each employee was only contracted to play the game once with a given employer, and all identities were concealed, so there would be no stigma attached if the employee reneged on his deal.
If either party were entirely self-interested, the employers would be expected to offer the minimum wage, and employees would only respond with minimal effort. In practice, this almost never occurred. Both parties were usually generous, and the more generous the employer, the greater the employee’s effort.
In fact, the employers mostly assumed that their employees would work hard and so were bounteous in their wage offers. Nevertheless, only 26 per cent of the employees delivered the full effort they promised.
In the next round of games, the employers were allowed to respond to their employees’ effort by paying more for higher effort. In this case, employers also showed an exquisite sense of fairness. More than two-thirds of the time, they rewarded employees who did more than they were contracted for, and nearly half gave rewards to their workers simply for fulfilling the contract. This time, whenever contracts were not fulfilled, two-thirds of the employers meted out punishment.
On the employees’ side, with a reward for effort now in place, most did more than their fair share. Underachievement on contracts fell from 83 per cent to 26 per cent, and overfillment of contracts rose tenfold.
Most significantly, allowing the bosses to reward or punish their workers according to effort increased the ultimate payoff to both bosses and workers by an average of 40 per cent.
This study reinforces the idea that, from our urge to connect, we have developed a strong internalized sense of fairness and we respond in kind, even when there is no threat of a drop in income from behaving selfishly.
So are workers likely to cheat? Not if they’re given a fair chance.
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