On the effect of experience: An experimental approach to delegation and tax compliance

In the field of decision-making under risk, researchers have started to focus on the effect of information acquisition modality on people’s decisional pro- cess, by means of a comparison between Decision from Description (DfD) and Decision from Experience (DfE). A literature review on the topic is provided in Chapter 1, which analyzes the determinants of the so-called description- experience gap and its translation into the planning-ongoing gap, according to which people tend to overweight rare events under description (or planning) and underweight them under experience (or ongoing decision-making). In such a framework, Chapter 2 experimentally investigates delegation in risky choices, in a three-party agency framework. Agents build a portfolio for their principals by selecting among prospects that are either fully described or experienced. Nevertheless, principals are given the opportunity to take over control and build their own portfolio by paying a fee. Principals are more efficient and ambitious than agents. Such a higher quality of principals’ portfolios is associated to a higher effort exerted in collecting information on risky options. Principals anticipate this performance difference, but pay a control fee that is generally excessive and negatively impacts on their final earnings. Chapter 3 and Chapter 4 study tax compliance, by providing a comparison between the two information acquisition modalities. Specifically, Chapter 3 serves as an introduction to Chapter 4, as it reviews the main theoretical and experimental literature on tax compliance, by referring to the role of objec- tive, perceived, and weighted probabilities in compliance decisions. Besides this, it provides a novel methodological analysis that justifies the adoption of laboratory experiments as an externally valid tool if sustained by agent-based simulations in the field of tax compliance. Chapter 4 reports on a laboratory experiment designed to explore the presence of the planning-ongoing gap in taxpayers’ behavior, by means of a (self) commitment system for compliance. In line with overweighting of rare events - i.e., fiscal audits-, planning induces the majority of people not only to opt for a commitment to tax compliance, but also to actually comply.