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Monetary incentives, what are they good for?

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  • Daniel Read
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    Abstract

    This paper is a critical reflection on the use of monetary incentives in economic experiments. The argument is that incentives have their effect through their influence on one or more of three factors: (1) cognitive exertion; (2) motivational focus; (3) emotional triggers. I suggest that these effects can often be achieved without monetary incentives, and incentives are not even guaranteed to achieve those effects. There are also disadvantages to requiring the use of incentives in experiments. The paper concludes by suggesting there is no basis for requiring the use of real incentives to do experimental economics.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13501780500086180
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Journal of Economic Methodology.

    Volume (Year): 12 (2005)
    Issue (Month): 2 ()
    Pages: 265-276

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    Handle: RePEc:taf:jecmet:v:12:y:2005:i:2:p:265-276

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    Web page: http://www.tandfonline.com/RJEC20

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    Related research

    Keywords: experimental methods; incentives;

    References

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    1. Grether, David M. & Plott, Charles R., . "Economic Theory of Choice and the Preference Reversal Phenomenon," Working Papers 152, California Institute of Technology, Division of the Humanities and Social Sciences.
    2. George Loewenstein, Ted O'Donoghue and Matthew Rabin., 2000. "Projection Bias in Predicting Future Utility," Economics Working Papers E00-284, University of California at Berkeley.
    3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    4. Starmer, Chris & Sugden, Robert, 1991. "Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation," American Economic Review, American Economic Association, vol. 81(4), pages 971-78, September.
    5. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    6. Cummings, Ronald G & Harrison, Glenn W & Rutstrom, E Elisabet, 1995. "Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible?," American Economic Review, American Economic Association, vol. 85(1), pages 260-66, March.
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