Fool Me Once: An Experiment on Credibility and Leadership

55 Pages Posted: 31 Aug 2016

See all articles by David J. Cooper

David J. Cooper

Florida State University - Department of Economics; University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS)

John Hamman

Florida State University - Department of Economics

Roberto A. Weber

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 15, 2016

Abstract

We study a situation in which a leader tries to induce followers to invest in a joint venture. This venture has three key properties: (1) returns are uncertain, (2) investments are complements, so investment is generally only profitable when the followers coordinate on investing, and (3) investment is often more beneficial for the leader than the followers. The leader has private information about the investment’s return and can facilitate successful coordination through cheap-talk recommendation. We study the extent to which leaders in such situations possess “social credibility” defined as the ability to coordinate followers’ behaviors with their statements. In an experiment, we find that leaders manage social credibility by forgoing potentially profitable requests for investment in order to make it more likely that subsequent recommendations to invest are followed. We identify factors that affect the persistence of social credibility.

Keywords: Leadership, Coordination, Complementary Investment, Experiment

JEL Classification: C72, C92, D82

Suggested Citation

Cooper, David J. and Hamman, John and Weber, Roberto A., Fool Me Once: An Experiment on Credibility and Leadership (August 15, 2016). Available at SSRN: https://ssrn.com/abstract=2832372 or http://dx.doi.org/10.2139/ssrn.2832372

David J. Cooper (Contact Author)

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS) ( email )

United Kingdom

John Hamman

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

Roberto A. Weber

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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