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Title:Large stakes and big mistakes PDF Logo
Authors:Ariely, Dan
Gneezy, Uri
Loewenstein, George
Mazar, Nina
Issue Date:2005
Series/Report no.:Working paper series // Federal Reserve Bank of Boston 05-11
Abstract:Most upper-management and sales force personnel, as well as workers in many other jobs, are paid based on performance, which is widely perceived as motivating effort and enhancing productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can in some cases produce supra-optimal motivation, resulting in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments at MIT, the University of Chicago, and rural India. Subjects in our experiment worked on different tasks and received performance-contingent payments that varied in amount from small to large relative to their typical levels of pay. With some important exceptions, we observed that high reward levels can have detrimental effects on performance.
Subjects:performance-based incentives
JEL:D00
Document Type:Working Paper
Appears in Collections:Working Paper Series, Federal Reserve Bank of Boston

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