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The Effects of Effort and Intrinsic Motivation on Risky Choice

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  • Ran Kivetz

    () (Graduate School of Business, Columbia University, 3022 Broadway, New York, New York 10027)

Abstract

People often need to trade off between the probability and magnitude of the rewards that they could earn for investing effort. The present paper proposes that the conjunction of two simple assumptions (relating effort-induced reward expectations to prospect theory's value function) provides a parsimonious theory that predicts that the nature of the required effort will have a systematic effect on such trade-offs. Using the case of frequency (or loyalty) programs, a series of five studies involving both real and hypothetical choices demonstrated that (a) the presence (as opposed to absence) of effort requirements enhances the preference for sure-small rewards over large-uncertain rewards; (b) the preference for reward certainty is attenuated when the effort activity is intrinsically motivating; and (c) continuously increasing the effort level leads to an inverted-U effect on the preference for sure-small over largeuncertain rewards. The studies also employ process measures and examine the mechanisms underlying the impact of the effort stream on the trade-off between the certainty and magnitude of rewards. The final section discusses the theoretical implications of this research as well as the practical implications with respect to frequency programs and other types of incentive systems.

Suggested Citation

  • Ran Kivetz, 2003. "The Effects of Effort and Intrinsic Motivation on Risky Choice," Marketing Science, INFORMS, vol. 22(4), pages 477-502, December.
  • Handle: RePEc:inm:ormksc:v:22:y:2003:i:4:p:477-502
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    File URL: http://dx.doi.org/10.1287/mksc.22.4.477.24911
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    References listed on IDEAS

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    Cited by:

    1. Rottenstreich, Yuval & Kivetz, Ran, 2006. "On decision making without likelihood judgment," Organizational Behavior and Human Decision Processes, Elsevier, vol. 101(1), pages 74-88, September.
    2. Hochman, Guy & Ayal, Shahar & Ariely, Dan, 2014. "Keeping your gains close but your money closer: The prepayment effect in riskless choices," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 582-594.
    3. Rosenboim, Mosi & Shavit, Tal & Cohen, Chen, 2013. "Do bidders require a monetary premium for cognitive effort in an auction?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 42(C), pages 99-105.
    4. Henry Penikas, 2012. "An Optimal Incentive Contract Preventing Excessive Risk-Taking by a Bank Manager," HSE Working papers WP BRP 03/FE/2012, National Research University Higher School of Economics.
    5. Christoph Bühren & Thorben C. Kundt, 2013. "Worker or Shirker – Who Evades More Taxes? A Real Effort Experiment," MAGKS Papers on Economics 201326, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. Utpal M. Dholakia & Itamar Simonson, 2005. "The Effect of Explicit Reference Points on Consumer Choice and Online Bidding Behavior," Marketing Science, INFORMS, vol. 24(2), pages 206-217, October.
    7. Kwok Leung & Tingting Chen & Guoquan Chen, 2014. "Learning goal orientation and creative performance: The differential mediating roles of challenge and enjoyment intrinsic motivations," Asia Pacific Journal of Management, Springer, vol. 31(3), pages 811-834, September.
    8. Ofir, Chezy & Simonson, Itamar, 2005. "The Effect of Stating Expectations on Customer Satisfaction and Shopping Experience," Research Papers 1881, Stanford University, Graduate School of Business.
    9. Roland T. Rust & Peter C. Verhoef, 2005. "Optimizing the Marketing Interventions Mix in Intermediate-Term CRM," Marketing Science, INFORMS, vol. 24(3), pages 477-489, December.
    10. repec:eee:ijrema:v:32:y:2015:i:3:p:284-296 is not listed on IDEAS
    11. repec:eee:joreco:v:25:y:2015:i:c:p:71-80 is not listed on IDEAS
    12. On Amir & Dan Ariely & Ziv Carmon, 2008. "The Dissociation Between Monetary Assessment and Predicted Utility," Marketing Science, INFORMS, vol. 27(6), pages 1055-1064, 11-12.
    13. Steven M. Shugan, 2005. "Brand Loyalty Programs: Are They Shams?," Marketing Science, INFORMS, vol. 24(2), pages 185-193.
    14. Vikas Mittal & Eugene W. Anderson & Akin Sayrak & Pandu Tadikamalla, 2005. "Dual Emphasis and the Long-Term Financial Impact of Customer Satisfaction," Marketing Science, INFORMS, vol. 24(4), pages 544-555, August.
    15. Steven M. Shugan, 2004. "Endogeneity in Marketing Decision Models," Marketing Science, INFORMS, vol. 23(1), pages 1-3.
    16. Wagner Kamakura & Carl Mela & Asim Ansari & Anand Bodapati & Pete Fader & Raghuram Iyengar & Prasad Naik & Scott Neslin & Baohong Sun & Peter Verhoef & Michel Wedel & Ron Wilcox, 2005. "Choice Models and Customer Relationship Management," Marketing Letters, Springer, vol. 16(3), pages 279-291, December.
    17. Yoo, Jungmin & Park, Minjung, 2016. "The effects of e-mass customization on consumer perceived value, satisfaction, and loyalty toward luxury brands," Journal of Business Research, Elsevier, vol. 69(12), pages 5775-5784.
    18. Ashley, Christy & Gillespie, Erin A. & Noble, Stephanie M., 2016. "The effect of loyalty program fees on program perceptions and engagement," Journal of Business Research, Elsevier, vol. 69(2), pages 964-973.
    19. repec:eee:joreco:v:24:y:2015:i:c:p:22-32 is not listed on IDEAS
    20. repec:eee:joreco:v:34:y:2017:i:c:p:287-293 is not listed on IDEAS

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