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Bad News: An Experimental Study on the Informational Effects of Rewards

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Author Info

  • Andrei Bremzeny

    (CEFIR and New Economic School)

  • Elena Khokhlovaz

    (McKinsey&Company)

  • Anton Suvorov

    (CEFIR and New Economic School)

  • Jeroen van de Ven

    ()
    (University of Amsterdam)

Abstract

Both psychologists and economists have argued that rewards often have hidden costs. One possible reason is that the principal may have incentives to offer higher rewards when she knows the task to be dificult. Our experiment tests if high rewards embody such bad news and if this is perceived by their recipients. Our design allows us to decompose the overall effect of rewards on effort into a direct incentive and an informational effect. The results show that most participants correctly interpret high rewards as bad news. In accordance with theory, the negative informational effect co-exists with the direct positive effect.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0164.

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Length: 38 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:cfr:cefirw:w0164

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Keywords: reward; bonus; informational content; motivation; crowdingout; laboratory experiment;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How bonuses backfire
    by chris dillow in Stumbling and Mumbling on 2011-09-19 14:06:31
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Cited by:
  1. Roberto Galbiatiy & Karl Schlagz & Joel van der Weele, 2010. "Sanctions that Signal: an Experiment," Levine's Working Paper Archive 661465000000001104, David K. Levine.
  2. Benabou, Roland & Tirole, Jean, 2012. "Laws and Norms," IZA Discussion Papers 6290, Institute for the Study of Labor (IZA).

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