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The Interaction between Financial Incentives and Task-specific Cognitive Capital: More Evidence in Support of Camerer and Hogarth (1999)

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  • Ondrej Rydval

    (Max Planck Institute of Economics, Jena, Germany.)

Abstract

This paper extends existing evidence on the interaction between financial incentives and cognitive capital. I focus on the impact of task-specific cognitive capital, the role of which is central to the capital-labor-production framework of Camerer and Hogarth (1999) and has long been studied in cognitive science and behavioral decision research. Using a task situated in an accounting setting, I show that both financial incentives and task-specific cognitive capital, and especially their interaction, matter for performance. In particular, the effect of task-specific cognitive capital on performance is stronger under performance-based financial incentives as compared to flat-rate incentives. The interaction effect arises because performance-based financial incentives lead to better performance only for individuals with more task-specific cognitive capital. I draw implications for compensation practices in experiments as well as work settings.

Suggested Citation

  • Ondrej Rydval, 2007. "The Interaction between Financial Incentives and Task-specific Cognitive Capital: More Evidence in Support of Camerer and Hogarth (1999)," Jena Economic Research Papers 2007-039, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2007-039
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    References listed on IDEAS

    as
    1. Erik Plug & Wim Vijverberg, 2003. "Schooling, Family Background, and Adoption: Is It Nature or Is It Nurture?," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 611-641, June.
    2. 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.
    3. 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.
    4. 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.
    5. Ignacio Palacios-Huerta, 2003. "Learning to Open Monty Hall's Doors," Experimental Economics, Springer;Economic Science Association, vol. 6(3), pages 235-251, November.
    6. Roland Bénabou & Jean Tirole, 2002. "Self-Confidence and Personal Motivation," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 871-915.
    7. Rydval, Ondrej & Ortmann, Andreas, 2004. "How financial incentives and cognitive abilities affect task performance in laboratory settings: an illustration," Economics Letters, Elsevier, vol. 85(3), pages 315-320, December.
    8. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial incentives; Cognitive abilities; Experiments; Field experiments;

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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