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Monetary incentives, what are they good for?

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  • Daniel Read

Abstract

This paper is a critical reflection on the use of monetary incentives in economic experiments. The argument is that incentives have their effect through their influence on one or more of three factors: (1) cognitive exertion; (2) motivational focus; (3) emotional triggers. I suggest that these effects can often be achieved without monetary incentives, and incentives are not even guaranteed to achieve those effects. There are also disadvantages to requiring the use of incentives in experiments. The paper concludes by suggesting there is no basis for requiring the use of real incentives to do experimental economics.

Suggested Citation

  • Daniel Read, 2005. "Monetary incentives, what are they good for?," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(2), pages 265-276.
  • Handle: RePEc:taf:jecmet:v:12:y:2005:i:2:p:265-276
    DOI: 10.1080/13501780500086180
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    References listed on IDEAS

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    1. George Loewenstein & Ted O'Donoghue & Matthew Rabin, 2003. "Projection Bias in Predicting Future Utility," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1209-1248.
    2. Starmer, Chris & Sugden, Robert, 1991. "Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation," American Economic Review, American Economic Association, vol. 81(4), pages 971-978, September.
    3. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    4. Cummings, Ronald G & Harrison, Glenn W & Rutstrom, E Elisabet, 1995. "Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible?," American Economic Review, American Economic Association, vol. 85(1), pages 260-266, March.
    5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    6. Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-638, September.
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    Keywords

    experimental methods; incentives;

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