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The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework

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Abstract

We review 74 experiments with no, low, or high performance-based financial incentives. The modal result has no effect on mean performance (though variance is usually reduced by higher payment). Higher incentive does improve performance often, typically judgment tasks that are responsive to better effort. Incentives also reduce “presentation” effects (e.g., generosity and risk-seeking). Incentive effects are comparable to effects of other variables, particularly “cognitive capital” and task “production” demands, and interact with those variables, so a narrow-minded focus on incentives alone is misguided. We also note that no replicated study has made rationality violations disappear purely by raising incentives.

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Authors and Affiliations

  1. Division of Humanities and Social Sciences 228-77, California Institute of Technology, Pasadena, CA, 91125

    Colin F. Camerer (Rea and Lela G. Axline Professor of Business Economics)

  2. University of Chicago, Chicago, IL, 60637

    Robin M. Hogarth (Wallace W. Booth Professor of Behavioral Science, Graduate School of Business)

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Camerer, C.F., Hogarth, R.M. The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework. Journal of Risk and Uncertainty 19, 7–42 (1999). https://doi.org/10.1023/A:1007850605129

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