Many economic agents, including CEOs, physicians, entrepreneurs, and political leaders are entrusted with decision-making authority. These economic agents act as trustees who make risky decisions, impacting their own welfare and that of their stakeholders. Stakeholders often demand measures to hold these trustees more accountable for their risky decisions. Until now, research has not systematically explored investors’ or third-parties’ efforts to hold trustees accountable when stakeholders have voluntarily entered into such relationships. Using a novel laboratory experiment, we explore how different accountability mechanisms influence stakeholders’ and third-parties’ choices of reward or punishment towards trustee decisions. We also explore which accountability mechanism best nudges trustees towards decisions that maximizes social welfare. Our results contrast with the predictions of existing theories on social preferences and principal-agent models, which struggle to explain stakeholders’ persistent outcome bias. We propose that the stakeholders’ accountability decisions are best explained by a theory that captures responses to both the pure quality of decisions and the perceived luck of the decision maker, in other words, a good decision with moral luck theory.
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