In the Labor Market, Contracts Are Often Designed to Include

question 19

Multiple Choice

In the labor market, contracts are often designed to include a variable salary component that is tied to some measure of performance. Why?

• A) Such contracts provide workers with the incentive to work hard.
• B) Most people are risk-loving and thus variability in their compensation leads to higher total utility.
• C) Labor unions demand a variable salary component.
• D) The variable component reduces wages paid by firms.

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Definitions:

False Consensus Effect

The cognitive bias whereby individuals overestimate the extent to which their beliefs, values, attitudes, or opinions are shared by others.

Oedipus Complex

A psychoanalytic theory describing a child's feelings of desire for the opposite-sex parent and jealousy towards the same-sex parent.

Projection

A defense mechanism where an individual attributes their own unacceptable thoughts or feelings to others.

Maslow

Refers to Abraham Maslow, an American psychologist known for creating Maslow's hierarchy of needs, a theory in psychology proposing that certain human needs must be fulfilled before others.