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

Author

Listed:
  • 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.

Suggested Citation

  • Andrei Bremzeny & Elena Khokhlovaz & Anton Suvorov & Jeroen van de Ven, 2011. "Bad News: An Experimental Study on the Informational Effects of Rewards," Working Papers w0164, Center for Economic and Financial Research (CEFIR).
    • Handle: RePEc:cfr:cefirw:w0164
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    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 19:06:31
    2. Ronnie O'Sullivan & the limits of incentives
      by chris in Stumbling and Mumbling on 2016-02-16 19:36:36
    3. Incentives as ideology
      by chris in Stumbling and Mumbling on 2016-04-06 17:35:07

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    4. Galbiati, Roberto & Schlag, Karl H. & van der Weele, Joël J., 2013. "Sanctions that signal: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 34-51.
    5. Tirole, Jean & Bénabou, Roland, 2011. "Laws and Norms," CEPR Discussion Papers 8663, C.E.P.R. Discussion Papers.
    6. Vanessa, Mertins & Jeworrek, Sabrina & Vlassopoulos, Michael, 2018. ""The Good News about Bad News": Feedback about Past Organisational Failure Bad ist Impact in Worker Productivity," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181644, Verein für Socialpolitik / German Economic Association.
    7. Marvin Deversi & Lisa Spantig, 2023. "Incentive and Signaling Effects of Bonus Payments: An Experiment in a Company," CESifo Working Paper Series 10302, CESifo.
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    9. Coffman, Lucas & Niehaus, Paul, 2020. "Pathways of persuasion," Games and Economic Behavior, Elsevier, vol. 124(C), pages 239-253.
    10. Cécile Bazart & Dimitri Dubois & Kate Farrow & Lisette Ibanez & Alain Marciano & Nathalie Moureau & Rustam Romaniuc & Julie Rosaz & Sébastien Roussel, 2017. "NORMES : NORmes sociales, Motivations Externes et internes, et politiques publiqueS," Working Papers hal-02938187, HAL.
    11. Alekseev, Aleksandr & Charness, Gary & Gneezy, Uri, 2017. "Experimental methods: When and why contextual instructions are important," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 48-59.
    12. Melody M. Chao & Rajeev Dehejia & Anirban Mukhopadhyay & Sujata Visaria, 2015. "Unintended Negative Consequences of Rewards for Student Attendance: Results from a Field Experiment in Indian Classrooms," HKUST IEMS Working Paper Series 2015-22, HKUST Institute for Emerging Market Studies, revised Apr 2015.
    13. Jakob Alfitian & Dirk Sliwka & Timo Vogelsang, 2021. "When Bonuses Backfire: Evidence from the Workplace," Natural Field Experiments 00725, The Field Experiments Website.
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    More about this item

    Keywords

    reward; bonus; informational content; motivation; crowdingout; laboratory experiment;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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