Behavioral Economics of Organizations

The course explores the relationship between workers and firms. We begin by examining the issue of worker motivation from a traditional perspective. Assuming a rational, self-interested, forward-looking utility-maximizing agent, we study the best way to structure that worker’s monetary incentives. We then move beyond purely financial motives, considering the role of psychological motives like social preferences, self-control issues, loss aversion, belief biases, as well as team dynamics and information frictions. Finally, we shift to the firm’s perspective, focusing on worker recruitment and the design of compensation structures within a firm.

Throughout the course, students engage with insights from labor economics, personnel economics, and behavioral economics. They also delve into the empirical methods used to address research questions in these fields, including microeconometric techniques, as well as lab and field experiments.

Specifically, the course explores questions such as:

• How strongly should workers be incentivized? How should financial incentives vary across jobs?
• How do coworker relationships, employee work morale, and perceived pay fairness impact workplace behavior?
• Should compensation vary for workers with self-control issues?
• To what extent do reference points and the framing of incentives shape workers' behavior?
• Do workers have accurate perceptions of the earnings potential? Do biased beliefs distort their decision-making?
• How can firms’ identify suitable candidates for open positions? Are managers’ hiring decisions biased?
• Does pay transparency effectively narrow wage differentials?