Advanced Search
MyIDEAS: Login

Large stakes and big mistakes

Contents:

Author Info

  • Dan Ariely
  • Uri Gneezy
  • George Loewenstein
  • Nina Mazar

Abstract

Most upper-management and sales force personnel, as well as workers in many other jobs, are paid based on performance, which is widely perceived as motivating effort and enhancing productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can in some cases produce supra-optimal motivation, resulting in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments at MIT, the University of Chicago, and rural India. Subjects in our experiment worked on different tasks and received performance-contingent payments that varied in amount from small to large relative to their typical levels of pay. With some important exceptions, we observed that high reward levels can have detrimental effects on performance.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bostonfed.org/economic/wp/wp2005/wp0511.htm
Download Restriction: no
File URL: http://www.bostonfed.org/economic/wp/wp2005/wp0511.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 05-11.

as in new window
Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:fip:fedbwp:05-11

Contact details of provider:
Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210
Phone: 617-973-3397
Fax: 617-973-4221
Email:
Web page: http://www.bos.frb.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Microeconomics;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Uri Gneezy & Aldo Rustichini, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
  2. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
  3. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  4. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
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. Inefficient and unfair
    by chris dillow in Stumbling and Mumbling on 2012-01-21 12:53:52
  2. The bosses' pay con-trick
    by chris dillow in Stumbling and Mumbling on 2011-10-28 09:21:13
  3. How bonuses backfire
    by chris dillow in Stumbling and Mumbling on 2011-09-19 14:06:31
  4. The left & shareholder activism
    by chris dillow in Stumbling and Mumbling on 2012-05-08 13:51:01
  5. A benefit of performance pay
    by chris dillow in Stumbling and Mumbling on 2012-05-29 13:43:17
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Clark, Andrew E. & Masclet, David & Villeval, Marie Claire, 2006. "Effort and Comparison Income: Experimental and Survey Evidence," IZA Discussion Papers 2169, Institute for the Study of Labor (IZA).
  2. Rydval, Ondrej & Ortmann, Andreas & Ostatnicky, Michal, 2009. "Three very simple games and what it takes to solve them," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 589-601, October.
  3. Paserman, Daniele, 2007. "Gender Differences in Performance in Competitive Environments: Evidence from Professional Tennis Players," IZA Discussion Papers 2834, Institute for the Study of Labor (IZA).
  4. Michael T. Rauh & Giulio Seccia, 2010. "Agency and Anxiety," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(1), pages 87-116, 03.
    • Michael T. Rauh & Giulio Seccia, 2006. "Agency and Anxiety," Working Papers 2006-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  5. Andrew Clark & David Masclet & Marie-Claire Villeval, 2006. "Effort and Comparison Income : Survey and Experimental Evidence," Post-Print halshs-00142880, HAL.
  6. Dohmen, Thomas, 2005. "Do Professionals Choke Under Pressure?," IZA Discussion Papers 1905, Institute for the Study of Labor (IZA).
  7. Benoît, Jean-Pierre & Dubra, Juan & Moore, Don, 2009. "Does the Better-Than-Average Effect Show That People Are Overconfident?: An Experiment," MPRA Paper 13168, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedbwp:05-11

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.