Source Dependence in Effort Provision

Abstract

Decision making under uncertainty depends on the sources of uncertainty, in terms of the level of ambiguity, competence, and familiarity, and their interplay with the likelihoods. This study examines source dependence in a new setting of effort provision, with a focus on comparisons among natural sources of uncertainty. Our first experiment elicits subjects' preference over two uncertain piece-rate schemes to perform a real effort task. The second experiment elicits subjects' effort provision after receiving an uncertain gift. In both experiments, we vary the likelihood of winning and the source of uncertainty with different degrees of familiarity. We document a consistent pattern whereby subjects are averse to unfamiliar sources of uncertainty when the likelihood of winning is moderate or high, and such aversion diminishes and may even reverse when the likelihood of winning is low. Moreover, effort exhibits more insensitivity to the likelihood of winning under the unfamiliar source compared with the familiar source. Our findings support the validity and generalizability of source dependence in applied settings.

Keywords: risk, uncertainty, source dependence, gift exchange, experiment

JEL Classification: C91, D81