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The Interaction between Financial Incentives and Task-specific Cognitive Capital: More Evidence in Support of Camerer and Hogarth (1999)

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Author Info
Ondrej Rydval (Max Planck Institute of Economics, Jena, Germany.)

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Abstract

This paper extends existing evidence on the interaction between financial incentives and cognitive capital. I focus on the impact of task-specific cognitive capital, the role of which is central to the capital-labor-production framework of Camerer and Hogarth (1999) and has long been studied in cognitive science and behavioral decision research. Using a task situated in an accounting setting, I show that both financial incentives and task-specific cognitive capital, and especially their interaction, matter for performance. In particular, the effect of task-specific cognitive capital on performance is stronger under performance-based financial incentives as compared to flat-rate incentives. The interaction effect arises because performance-based financial incentives lead to better performance only for individuals with more task-specific cognitive capital. I draw implications for compensation practices in experiments as well as work settings.

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Publisher Info
Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek in its series Jena Economic Research Papers in Economics with number 2007-039.

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Date of creation: 18 Jul 2007
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Handle: RePEc:jrp:jrpwrp:2007-039

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Related research
Keywords: Financial incentives; Cognitive abilities; Experiments; Field experiments;

Find related papers by JEL classification:
C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Microeconomic Data
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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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.:
  1. Roland Bénabou & Jean Tirole, 2002. "Self-Confidence And Personal Motivation," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 871-915, August. [Downloadable!] (restricted)
  2. Erik Plug & Wim Vijverberg, 2003. "Schooling, Family Background, and Adoption: Is It Nature or Is It Nurture?," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 611-641, June. [Downloadable!] (restricted)
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  3. Bonner, Sarah E. & Sprinkle, Geoffrey B., 2002. "The effects of monetary incentives on effort and task performance: theories, evidence, and a framework for research," Accounting, Organizations and Society, Elsevier, vol. 27(4-5), pages 303-345. [Downloadable!] (restricted)
  4. Libby, Robert & Luft, Joan, 1993. "Determinants of judgment performance in accounting settings: Ability, knowledge, motivation, and environment," Accounting, Organizations and Society, Elsevier, vol. 18(5), pages 425-450, July. [Downloadable!] (restricted)
  5. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  6. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Blackwell Publishing, vol. 70(3), pages 489-520, 07. [Downloadable!] (restricted)
  7. Rydval, Ondrej & Ortmann, Andreas, 2004. "How financial incentives and cognitive abilities affect task performance in laboratory settings: an illustration," Economics Letters, Elsevier, vol. 85(3), pages 315-320, December. [Downloadable!] (restricted)
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  8. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December. [Downloadable!] (restricted)
  9. Ignacio Palacios-Huerta, 2003. "Learning to Open Monty Hall's Doors," Experimental Economics, Springer, vol. 6(3), pages 235-251, November. [Downloadable!] (restricted)
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