The Effect of Mood and Tournament Incentives on Negotiators’ Judgments and Intra-Firm Negotiations

• In Event: Relative Performance Incentives

Abstract

This study examines how mood (positive vs negative mood) and incentive schemes (fixed pay vs tournament incentive scheme) influence negotiators’ judgments and their intra-divisional negotiations in a transfer price context. Our experiment shows that compared to sellers in a negative mood, sellers in a positive mood are more likely to display egocentric bias in their estimated final transfer prices. Sellers with tournament incentive schemes also display a higher level of egocentric bias than those in fixed incentive schemes. We also observe an interaction effect such that a tournament incentive scheme reduces the effect of mood on sellers’ estimated final transfer prices. However, we did not find any significant mood or incentive scheme effect on buyers. With respect to the actual negotiation outcomes, we find that negotiating dyads under a tournament incentive scheme take longer to reach an agreement than those given a fixed pay scheme, and a positive mood causes more impasses and external trades than a negative mood. Overall, our results contribute to our understanding of how mood and incentive scheme affect the way negotiators respond to accounting information in a transfer price context.

Authors

• Linda Joy Chang, University of New South Wales

• Mandy Man-sum Cheng, University of New South Wales

• Samuel Hong Ly, UNSW Australia