The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework

The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework We review 74 experiments with no, low, or high performance-based financial incentives. The modal result has no effect on mean performance (though variance is usually reduced by higher payment). Higher incentive does improve performance often, typically judgment tasks that are responsive to better effort. Incentives also reduce “presentation” effects (e.g., generosity and risk-seeking). Incentive effects are comparable to effects of other variables, particularly “cognitive capital” and task “production” demands, and interact with those variables, so a narrow-minded focus on incentives alone is misguided. We also note that no replicated study has made rationality violations disappear purely by raising incentives. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Risk and Uncertainty Springer Journals

The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Economics; Economic Theory/Quantitative Economics/Mathematical Methods; Microeconomics; Operation Research/Decision Theory; Environmental Economics
ISSN
0895-5646
eISSN
1573-0476
D.O.I.
10.1023/A:1007850605129
Publisher site
See Article on Publisher Site

Abstract

We review 74 experiments with no, low, or high performance-based financial incentives. The modal result has no effect on mean performance (though variance is usually reduced by higher payment). Higher incentive does improve performance often, typically judgment tasks that are responsive to better effort. Incentives also reduce “presentation” effects (e.g., generosity and risk-seeking). Incentive effects are comparable to effects of other variables, particularly “cognitive capital” and task “production” demands, and interact with those variables, so a narrow-minded focus on incentives alone is misguided. We also note that no replicated study has made rationality violations disappear purely by raising incentives.

Journal

Journal of Risk and UncertaintySpringer Journals

Published: Sep 28, 2004

References

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