An experimental study into the influence of works council advice on managerial decision-making

• An important aspect of managerial decision-making is studied, namely formal employee representation through works councils.
• A laboratory experiment is used to study the fundamental mechanisms of works council advice effects.
• Students assume the role of works council representatives giving advice and of managers taking a price decision in a Prisoner's Dilemma game.
• Receiving advice to choose low leads to a higher tendency to choose a low price.
• Prosocial managers tend to choose a high price, even when advised to opt for a low price.

SummaryThis paper experimentally studies the effect of works council advice on managerial decision-making, aiming to gain more insights into the fundamental mechanisms that may underlie the impact of works council advice. We conducted laboratory experiments in which subjects played a two-player Prisoner's Dilemma price-setting game as either a manager or works council representative. Half of the managers received an advice to opt for a low or a high price; the other half received no advice. Managers receiving advice to choose a low price (play Nash) have a higher tendency to choose a low price. Subjects with an other-regarding orientation tend to choose a high price. Furthermore, we found an interaction effect of advice for other-regarding managers.