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Large stakes and big mistakes

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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.

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Bibliographic Info

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

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Date of creation: 2005
Date of revision:
Handle: RePEc:fip:fedbwp:05-11

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Keywords: Microeconomics;

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References

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  1. Uri Gneezy & Aldo Rustichini, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
  2. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  3. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
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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
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