The Austrian Science Fund has decided to fund the project "Outcome bias in principal-agent relationships" by J. Hoelzemann, M. Loewenfeld and Jean-Robert Tyran (PI) in his session of June 2026 with 379k Euro for a period of 3 years (start tbd).

Abstract: 

The canonical approach to delegated decision-making builds on the principal-agent framework, and studies optimal contracting under the assumption that contracts are fully specified ex-ante. In reality, however, many principal-agent interactions are characterized by incomplete contracts and extensive ex-post ad-hoc evaluations. For instance, in employment relations, decisions about promotions or bonus payments are seldom made according to pre-specified rules. Because OB is prevalent in settings where luck strongly influences performance – such as R&D, finance, or promotion decisions – it can distort incentives, undermine welfare, and generate unintended behavioral responses. The project introduces a unified and portable theoretical–experimental framework for studying OB in principal–agent relationships, bringing novel insight to key economic issues such as incentivizing costly effort, how agents respond when they are being blamed for bad luck, whether principals are willing to shield themselves from outcome information to avoid OB, and possible interventions to remedy OB.