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The Effect of Financial Incentives and Task-specific Cognitive Abilities on Task Performance

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  • Ondrej Rydval

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    (Max Planck Institute of Economics, Jena)

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    Abstract

    We extend evidence on the interaction between financial incentives and cognitive abilities by focusing on the effect of task-specific abilities. In a memory-intensive task situated in an accounting context, the effect of accounting education on performance is stronger under financial incentives as compared to flat rate pay. Subjects with more accounting education respond stronger to financial incentives. Hence using incentives efficiently may involve targeting them at high-ability individuals. More generally, taking into account the incentive-ability interaction seems important when interpreting observed behavior in cognitively demanding lab and field economic environments.

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    File URL: http://www.wiwi.uni-jena.de/Papers/jerp2011/wp_2011_050.pdf
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    Bibliographic Info

    Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2011-050.

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    Date of creation: 03 Nov 2011
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    Handle: RePEc:jrp:jrpwrp:2011-050

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    Keywords: Financial incentives; Cognitive ability; Performance; Experiment;

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    1. Ignacio Palacios-Huerta, 2002. "Learning to Open Monty Hall's Doors," Working Papers 2002-23, Brown University, Department of Economics.
    2. Wilcox, Nathaniel T, 1993. "Lottery Choice: Incentives, Complexity and Decision Time," Economic Journal, Royal Economic Society, vol. 103(421), pages 1397-1417, November.
    3. Ondrej Rydval & Andreas Ortmann, 2004. "How financial incentives and cognitive abilities affect task performance in laboratory settings: An illustration," CERGE-EI Working Papers wp221, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    4. 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.
    5. Budescu, David V, 1999. "Commentary on "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 43-45, December.
    6. Eckel, Catherine, 1999. "Commentary on "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 47-48, December.
    7. 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.
    8. 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.
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