Higher Incentive Leading to Worse Performance
Topic: How the level of monetary incentive influence performance
Researchers: Dan Ariely (Professor of Behavioral Economics, Duke University, US), Uri Gneezy (Professor of Management and Strategy, University of California, US), George Loewenstein (Professor of Economics and Psychology, Yale University, US), and Nina Mazar (Assistant Professor of Marketing, University of Toronto, Canada)
Published By: Federal Reserve Bank of Boston
Formal Reference: Dan Ariely, Uri Gneezy, George Loewenstein, and Nina Mazar, “Large Stakes and Big Mistakes”, Federal Reserve Bank of Boston Working Paper no. 05-11, July 23, 2005
Main Conclusion: Higher monetary incentive does not improve performance; if the incentive is high enough, it damages performance.
Description of Experiment
a. Researchers gathered 87 participants in Madurai, India, and asked them to play several games, like tossing tennis balls at target, fitting pieces of metal puzzle into a plastic frame, and recalling a string of digits. These games required motor skills, creativity, or concentration.
b. Participants were divided into 3 groups:
Group A. was offered 4 rupees (= 50 US cents, or equal to a day’s pay) for reaching performance targets.
Group B. was offered 40 rupees (= $5, or equal to two weeks pay) for reaching performance targets.
Group C. was offered 400 rupees (= $50, or equal to nearly 5 months’ pay) for reaching performance targets.
c. Groups A. and B. reached similar results (in some cases Group A. did better), while group C. results did worst across all tasks and by nearly every measure. In 8 of the 9 tasks higher incentive led to worse performance.
Higher monetary incentive does not improve performance; if the incentive is high enough, it damages performance.
Prof. Ariely believe (conversation held on August 5th, 2010, Tel Aviv University, following his lecture to MBA alumni) that what damages performance is simply pressure created by the prospects of high reward.