Why do business losses cause conflict?

Journal of Operations Management

A psychological contract defines the perceived reciprocal obligations that characterize a relationship between an individual and organizational entity. Breach of a psychological contract can negatively affect work behaviors and attitudinal perceptions, and may also elicit an emotional response (violation) which can help to explain these negative consequences. This research focuses on the role of psychological contracts in a supply chain setting. We explore when and how three conditions of psychological contract breach – attribute, severity, and timing – negatively impact outcomes, and assess the mediating role of psychological contract violation in this relationship. To evaluate our hypotheses, we employ a laboratory experiment in which participants assume the role of a purchasing manager. We impose various breach factors and observe their relative impact on the decision-making behavior and fairness perceptions of the participant. We show that while the breach factors significantly ...

Journal of Experimental Social Psychology, 2005

Three studies examined the predictions that in the context of evaluation of fairness and concessions in negotiations, losses would be perceived as more intensely negative than non-gains, and that non-losses would be perceived as more positive than gains. Extant studies tested only the first of these predictions. These predictions derive from the principle of loss aversion (LA), according to which losses are experienced more intensely than gains of similar objective magnitude. In this view, losses and non-losses are measured against the steep loss part of the value curve, whereas gains and non-gains are measured against the shallow part of the value curve. Our studies replicated extant studies in confirming the first prediction but failed to confirm the second prediction. Specifically, opposite to the prediction of LA, gains were perceived as more intensely positive than non-losses. It seems, therefore, that LA is not a sufficient explanation of why losses are perceived as more averse than gains. Feature positive and regulatory focus effects are discussed as additional potential contributors to the phenomenon.

SSRN Electronic Journal, 2000

Rather than acting as a safeguard, contracts may actually damage relationships. Using field and lab studies, we assessed the effects of contracts on contract formation, implementation, and ultimate outcomes. Studies 1 and 2 showed that the presence of a contract led people to anticipate more contentious interactions, which then led to a reduction in their actual cooperative behavior. Studies 3 and 4 showed that contracts that included sanctions led to poor team performance.

Journal of Supply Chain Management, 2016

Today's globally competitive environment presents ample opportunity for buyers to dissolve relationships by switching suppliers. While previous studies have described supplier switching behavior based on supplier attributes and switching costs, our study leverages attribution theory to evaluate the impact of psychological contracts on supplier switching behavior. We report the results of a controlled experiment involving 265 subjects in which we manipulate three characteristics of a psychological contract breach: attribution (whether the breach was due to reneging by the supplier or a disruption), severity (whether the breach was major or minor), and timing (whether the breach was early or late in the life cycle of the exchange history). Our analysis indicates that in the context of supplier switching, buyers are affected by the attribution and severity of a breach but not by the timing. In contrast to previous experimental research in noncompetitive settings, we find that psychological contract violation mediates the relationship between breach and behavior. We further complement our primary findings with a vignette-based experiment and interview data collected from experienced managers. Our research makes an important contribution to the relationship dissolution and industrial buyer behavior literatures by providing a behavioral explanation for supplier switching and reveals the complex role of psychological contracts in supply chain exchanges.

Australian Journal of Management, 2007

The nature of employees' psychological contracts has gained relevance in the last decade due to changes in the employment relationship. However, little research has been conducted in Australia. The present study examined the psychological contracts of 90 MBA students in two Australian universities and the effects of contract violation on indices of organisational behaviour. Survey batteries, consisting of the Psychological Contract Scale, measures of commitment and trust, and of perceptions of contract violation, were administered. Findings indicated that the perception of contract violation was associated with lower organisational commitment and trust. Significantly, it was found that the impact of contract violation on commitment and trust was mediated by relational, but not by transactional, contract scores.

Contract Governance is, amongst others, concerned with solving problems of cooperation and opportunistic behaviour. However, with homo reciprocans as a party to the contract, contractual relationships are necessarily accompanied by expectations of fairness and reciprocity. In this regard, the last two decades have witnessed tremendous progress towards a behavioural account of fairness and its pivotal role in sustaining cooperation. In this article, I sketch some important features of the general working mechanisms of fairness based on a selective review of the literature.

Journal of business and psychology, 2001

Journal of Institutional and Theoretical Economics JITE, 2012

Recent evidence from the field (Hossain and List, 2009) suggests that contracts framed in terms of a loss (a deduction is taken for failing to meet a threshold) lead to greater effort than contracts framed in terms of a gain (a bonus is given for meeting a threshold). We investigate two explanations for this framing effect in a laboratory setting. First, we find that the loss frame communicates the expectation that achieving the bonus is the default and that our subjects comply with this expectation. Second, we find evidence for an endowment effect, even though the bonus is just a monetary payment that subjects do not even have in their possession. (JEL: K12, C91, L14, J41)

Risk Analysis, 2008

Findings from previous studies of individual decision-making behavior predict that losses will loom larger than gains. It is less clear, however, if this loss aversion applies to the way in which individuals attribute value to the gains and losses of others, or if it is robust across a broad spectrum of policy and management decision contexts. Consistent with previous work, the results from a series of experiments reported here revealed that subjects exhibited loss aversion when evaluating their own financial gains and losses. The presence of loss aversion was also confirmed for the way in which individuals attribute value to the financial gains and losses of others. However, similar evaluations within social and environmental contexts did not exhibit loss aversion. In addition, research subjects expected that individuals who were unknown to them would significantly undervalue the subjects' own losses across all contexts. The implications of these findings for risk-based policy and management are many. Specifically, they warrant caution when relying upon loss aversion to explain or predict the reaction of affected individuals to risk-based decisions that involve moral or protected values. The findings also suggest that motivational biases may lead decisionmakers to assume that their attitudes and beliefs are common among those affected by a decision, while those affected may expect unfamiliar others to be unable to identify and act in accordance with shared values.

Purpose – This paper seeks to examine whether individual values are related to perceptions of psychological contracts and psychological contract breach when justice perceptions are taken into account. Design/methodology/approach – The study sample comprised staff employees of one of the largest banks in Israel. The sample included 311 employees in the head office of this bank. Data were collected from the employees over a period of about three months. Findings – The findings show a modest relationship between individual values and perceptions of a relational type of psychological contract. The findings show weaker relationships between the values, perceived transactional-type contracts, and perceptions of contract breach. Research limitations/implications – The study relied upon a cross-sectional design. Such a design consists of a single observation with no control groups, and so cannot be used to draw conclusions about causal relationships between the variables. In addition, the study examined only one professional group in one culture. Practical implications – The significant relationship between conservation and self-transcendence values and perceptions of relational-type contracts suggests that organizations should take this into account when making hiring and human resource (HR) management decisions. Originality/value – Few studies have examined how individual values relate to the type of psychological contract individuals perceive themselves involved in, or the way they perceive contract breach. Examining individual-level values helps to elucidate the attitudes and behaviors of employees in the workplace.