To hide or not to hide? How fear and futility affect the decision to report a mistake

Abstract

Even though reporting mistakes could substantially improve work processes and productivity within organisations, employees often hesitate to do so. This paper studies the role of fear (of being fired) and futility (i.e. reports being inconsequential) in explaining such employee silence. Drawing on a principal-agent framework with career concerns, we formalise mistakes as noisy signals of both agent quality and the work environment and show that optimal reporting decisions are affected by fear and futility considerations. We then use a novel experiment to exogenously manipulate the degree of fear and futility and test our theoretical predictions. In a 2x2 between-subject design, we vary the anonymity of reporting and the likelihood of organisational response. Results show that reducing fear and futility are complementary actions. Tackling both significantly increases reporting by about 20pp. This improvement in communication is accompanied by better organisational income, highlighting the value of improved reporting structures for firms and employees.