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Behavioral Economics and Psychology of Incentives

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  • Emir Kamenica

    ()
    (Booth School of Business, University of Chicago, Chicago, Illinois 60637)

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    Abstract

    Monetary incentives can backfire while nonstandard interventions, such as framing, can be effective in influencing behavior. I review the empirical evidence on these two sets of anomalies. Paying for inherently interesting tasks, paying for prosocial behavior, paying too much, paying too little, and providing too many options can all be counterproductive. At the same time, proper design of the decision-making environment can be a potent way to induce certain behaviors. After presenting the empirical evidence, I discuss the relative role of beliefs, preferences, and technology in the anomalous impacts of incentives. I argue that inference, signaling, loss aversion, dynamic inconsistency, and choking are the primary factors that explain the data.

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    Bibliographic Info

    Article provided by Annual Reviews in its journal Annual Review of Economics.

    Volume (Year): 4 (2012)
    Issue (Month): 1 (07)
    Pages: 427-452

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    Handle: RePEc:anr:reveco:v:4:y:2012:p:427-452

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    Related research

    Keywords: motivation; choking; inference; nudging;

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    Cited by:
    1. Schnellenbach, Jan & Schubert, Christian, 2014. "Behavioral public choice: A survey," Freiburg Discussion Papers on Constitutional Economics 14/03, Walter Eucken Institut e.V..
    2. Dolan, Paul & Rudisill, Caroline, 2014. "The effect of financial incentives on chlamydia testing rates: Evidence from a randomized experiment," Social Science & Medicine, Elsevier, vol. 105(C), pages 140-148.
    3. Mazzocco, Ketti & Cherubini, Anna Maria & Cherubini, Paolo, 2013. "On the short horizon of spontaneous iterative reasoning in logical puzzles and games," Organizational Behavior and Human Decision Processes, Elsevier, vol. 121(1), pages 24-40.
    4. Dohmen, Thomas, 2014. "Behavioural Labour Economics: Advances and Future Directions," IZA Discussion Papers 8263, Institute for the Study of Labor (IZA).

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