Journal Article

Large Stakes and Big Mistakes

Dan Ariely, Uri Gneezy, George Loewenstein and Nina Mazar

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 76, issue 2, pages 451-469
Published in print April 2009 | ISSN: 0034-6527
Published online April 2009 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2009.00534.x
Large Stakes and Big Mistakes

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  • Demand and Supply of Labour
  • Wages, Compensation, and Labour Costs
  • Economic Development

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Workers in a wide variety of jobs are paid based on performance, which is commonly seen as enhancing effort and productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can, in some cases, result in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments in the U.S. and in India in which subjects worked on different tasks and received performance-contingent payments that varied in amount from small to very large relative to their typical levels of pay. With some important exceptions, very high reward levels had a detrimental effect on performance.

Keywords: J24; J31; O15

Journal Article.  8591 words.  Illustrated.

Subjects: Demand and Supply of Labour ; Wages, Compensation, and Labour Costs ; Economic Development

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