Accounting and Finance Seminar: Christopher Hennessy, London Business School

Presenter: Christopher Hennessy, London Business School

Title: Discretionary Choice, Motivation, and the SUTVA

Abstract: We illustrate how a rational agent's motivation changes as one moves from RCTs to settings with discretionary choice. A distinguishing characteristic of discretion is due diligence: Before choosing treatment status, agents acquire information (signals). This alters motivation, with due diligence putting self-esteem at risk: Outcomes consistent with due diligence signals suggest good decision-making ability. Self-esteem risk exposure has instrumental value since learning about decision-making ability improves future decision-making. This channel increases incentives for undertaking actions that are informative about due diligence quality. Under random assignment without due diligence: nothing is revealed about decision-making ability; the self-esteem component of motivation is absent; and SUTVA is violated. Thus, RCTs may have limited portability. Nevertheless, RCTs with high treatment probabilities and selective trials with small reassignment probabilities can increase due diligence incentives, improving portability. To illustrate, we consider implications military draft lotteries; randomised micro-credit; and addiction treatment trials.

Host: Stefan Hirth