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The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework

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  • Camerer, Colin F
  • Hogarth, Robin M

Abstract

We review 74 experiments with no, low, or high performance-based financial incentives. The modal result is no effect on mean performance (though variance is usually reduced by higher payment). Higher incentive does improve performance often, typically judgment tasks that are responsive so better effort. Incentives also reduce "presentation" effects (e.g., generosity and risk-seeking). Incentive effects are comparable to effects of other variables, particularly "cognitive capital" and task "production" demands, and interact with those variables, so a narrow-minded focus on incentives alone is misguided. We also note that no replicated study has made rationality violations disappear purely by raising incentives. Copyright 1999 by Kluwer Academic Publishers

Suggested Citation

  • 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.
  • Handle: RePEc:kap:jrisku:v:19:y:1999:i:1-3:p:7-42
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