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Goals, Bonuses and Loss Aversion

Author

Listed:
  • Victor Gonzalez-Jimenez
  • Patricio S. Dalton
  • Charles N. Noussair

Abstract

To enhance workers' motivation, organizations often offer monetary bonuses that are linked to meeting production goals. We argue that when workers set these production goals and are sufficiently loss averse, offering a monetary bonus for goal achievement may backfire. The rationale is as follows: while self-chosen goals can act as reference points that motivate loss-averse workers to increase effort and earnings, a monetary bonus for goal achievement may crowd-out the motivation to set an ambitious goal because workers will not want to miss the bonus offered. Hence, monetary bonuses will induce workers set more conservative goals, attenuating the motivational effects of goal setting. We show experimental evidence consistent with this mechanism.

Suggested Citation

  • Victor Gonzalez-Jimenez & Patricio S. Dalton & Charles N. Noussair, 2024. "Goals, Bonuses and Loss Aversion," Experimental Economics Center Working Paper Series 2024-03, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:exc:wpaper:2024-03
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    Keywords

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    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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