Introduction

Leadership plays a key role characterizing many social and economic activities in our daily life. Yukl (2013: 18) refers to leadership as “a process whereby intentional influence is exerted over other people to guide, structure, and facilitate activities and relationships in a group or organization”. From a behavioural economics perspective, one critical dimension of leadership is its potential to influence and change others’ behaviour – this makes it a useful means that can be employed in order to motivate pro-sociality. In addition, leaders are thought of as individuals who put aside their own self-interest in order to serve the collective goals, irrespective of whether this may lead to monetary or non-monetary losses in terms of their own careers, reputation or social image. Our particular interest in this chapter is to understand whether and if so, how the power of leadership can induce cooperative behaviour in social dilemma games where there is a tension between personal interests and group benefits. Questions such as which sort of leadership strategies are more likely to resolve the trade-off between self-interest and group welfare, and which are those characteristics that make a good leader have captured the attention of behavioural economists (as well as other social scientists).

Guided by the well-documented evidence from public good games (see Chapter 4) where individuals’ contribution behaviour follows a decaying pattern, the literature has attempted to uncover mechanisms that can be used to eschew selfish behaviour. While leadership can take different forms, in behavioural economics, it has been typically studied as a sequential game whereby the leader in a group is the person who first decides how much to contribute. Following the leader's decision, the other members of the group (referred to as followers) then decide on their contributions. This sort of decision-making environment is known as “leading-by-example” (see Figure 6.1 for a graphical illustration of the sequential public good game).

So why is this paradigm an interesting setting? There are many examples in which the responsibility of making a decision falls on the shoulders of an individual who needs to set the example by deciding first.