Chapter 3
Models of human behaviour
- What are humans and how do humans behave?
- What are the drivers of human behaviour?
3 models: Economic, Socialogical and Psychological
Economic Model
- People make rational and deliberate choices to maximize their utility
- Main motivator for time and effort is to receive monetary payments
- very calculative in how much effort and time they put in, in return for the money they can earn
Agency theory
- How to avoid dysfunctional behaviour?
Use a contract that makes the agent work in the best interest of themselves AND the principal.
- When there is no external uncertainty:
A simple pay-for-performance contract
- If external uncertainty is high:
and the agent is averse, the optimal contract may include a higher proportion of fixed pay
Performance metrics coupled with monetary rewards are an example of output controls.
Three principles
Principle 1: MCS should motivate managers and employees by goals and rewards.
Principle 2: MCS should consider managerial and employee abilities and inabilities.
Principle 3: MCS should support a healthy, social and ethical environment.
- Informal processes: communication, decision-making, conflict resolution
- Culture matters: values, norms, attitudes, beliefs, behaviors
- Social values matter: respect, trust, loyalty, fairness, equality
- Ethics matter: integrity, honesty, responsibility, accountability
National Culture
- Individual rewards and individualistic countries (e.g. the United States)
- Decentralization and equality (e.g. Scandinavia)
- Subjective evaluation and uncertainty avoidance (e.g. Japan)
| Dimension | Meaning |
|---|---|
| Individualism vs Collectivism | People feel independent or member of a group |
| Uncertainty avoidance | Uncertainty and ambiguity are appreciated and accepted |
| Masculinity vs Femininity | Outings of explicit power and competition and positively valued |
| Power distance | Less powerful members accept that power is distributed unequally |
| Long vs short term orientation | The future and past are seen as dynamic vs static |
| Indulgence vs Restraint | People prefer to be free in what they do and prefer and prefer to follow their impulses |
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