Motivation, Incentives, and Rewards

Kevin Lewis

May 16, 2010

On the Costs of Self-interested Economic Behavior: How Does Stinginess Get Under the Skin?

Elizabeth Dunn, Claire Ashton-James, Margaret Hanson & Lara Aknin
Journal of Health Psychology, May 2010, Pages 627-633

The present study examined how financial decisions 'get under the skin'. Participants played an economic game in which they could donate some of their payment to another student. Affect was measured afterward and salivary cortisol was measured before and afterward. Participants who kept more money for themselves reported less positive affect, more negative affect, and more shame. Shame predicted higher levels of post-game cortisol, controlling for pre-game cortisol; stingy economic behavior therefore produced a significant indirect effect on cortisol via shame. Thus, shame and cortisol represent plausible emotional and biological pathways linking everyday decisions with downstream consequences for health.


Does competition enhance performance or cheating? A laboratory experiment

Christiane Schwieren & Doris Weichselbaumer
Journal of Economic Psychology, June 2010, Pages 241-253

In this paper, we experimentally test whether competing for a desired reward does not only affect individuals' performance, but also their tendency to cheat. Recent doping scandals in sports as well as forgery and plagiarism scandals in academia have been partially explained by "competitive pressures", which suggests a link between competition and cheating. In our experiment subjects conduct a task where they have the possibility to make use of illegitimate tools to better their results. We find that women react much stronger to competitive pressure by increasing their cheating activity while there is no overall sex difference in cheating. However, the effect of competition on women's cheating behavior is entirely due to the fact that women, on average, are doing worse with respect to the assigned task. Indeed we find that it is the ability of an individual to conduct a particular task and not sex that crucially affects the reaction to competition. Poor performers significantly increase their cheating behavior under competition which may be a face-saving strategy or an attempt to retain a chance of winning.


Does the Stock Market Harm Investment Incentives?

John Asker, Joan Farre-Mensa & Alexander Ljungqvist
NYU Working Paper, May 2010

We examine whether stock market-listed firms in the U.S. invest suboptimally due to agency costs resulting from separation of ownership and control. We derive testable predictions to distinguish between underinvestment due to rational "short-termism" and overinvestment due to "empire building." Empirical identification relies on a proxy for optimal investment derived from a rich new data source on unlisted U.S. firms. Listed firms invest less and are less responsive to changes in investment opportunities compared to matched unlisted firms, especially in industries in which stock prices are particularly sensitive to current profits. Listed firms also tend to smooth their earnings growth and dividends and are reluctant to report negative earnings. These findings are consistent with short-termism and contrary to what one would expect if empire-building were the dominant agency problem in the stock market. Our results suggest that the stock market harms investment incentives, at least for the fast-growing companies in our sample.


The effect of noise in a performance measure on work motivation: A real effort laboratory experiment

Randolph Sloof & Mirjam van Praag
Labour Economics, forthcoming

This paper reports the results of an individual real effort laboratory experiment where subjects are paid for measured performance. Measured performance equals actual performance plus noise. We compare a stable environment where the noise is small with a volatile environment where the noise is large. Subjects exert significantly more effort in the volatile environment than in the stable environment. This finding is in line with standard agency theory and contrasts the intuitive idea captured by a distinct element of expectancy theory that noisier performance measures would lower work motivation.


The surprisingly low motivational power of future rewards: Comparing conventional money-based measures of discounting with motivation-based measures

Jane Ebert
Organizational Behavior and Human Decision Processes, March 2010, Pages 71-92

Temporal discount rates are often poor predictors of behaviors that we expect will be motivated by the future. The current research suggests this may be because conventional discounting measures are poor measures of the motivational value of future rewards. In six studies, I develop motivation-based measures of the present value (PV) of future rewards and compare the PVs obtained with those obtained using conventional money-based discounting measures. Conventional money-based PVs consistently overestimate motivation-based PVs and are discriminable from them. I explore explanations for this mismatch, including timing of effort exertion (Study 2) and loss aversion (Study 3), both features of the motivation-based measures. In Study 5, I use self-reports of valuation strategies and a time pressure manipulation to demonstrate that participants use different valuation strategies in the conventional money-based and the motivation-based measures that, in part, determine the difference in PVs obtained and the relatively low correspondence between them.


Prefrontal cortex mediation of cognitive enhancement in rewarding motivational contexts

Koji Jimura, Hannah Locke & Todd Braver
Proceedings of the National Academy of Sciences, 11 May 2010, Pages 8871-8876

Increasing the reward value of behavioral goals can facilitate cognitive processes required for goal achievement. This facilitation may be accomplished by the dynamic and flexible engagement of cognitive control mechanisms operating in distributed brain regions. It is still not clear, however, what are the characteristics of individuals, situations, and neural activation dynamics that optimize motivation-linked cognitive enhancement. Here we show that highly reward-sensitive individuals exhibited greater improvement of working memory performance in rewarding contexts, but exclusively on trials that were not rewarded. This effect was mediated by a shift in the temporal dynamics of activation within right lateral prefrontal cortex, from a transient to predominantly tonic mode, with an additional anticipatory transient boost. In contexts with intermittent rewards, a strategy of proactive cognitive control may enable globally optimal performance to facilitate reward attainment. Reward-sensitive individuals appear preferentially motivated to adopt this resource-demanding strategy, resulting in paradoxical benefits selectively for nonrewarded events.


Mixing Individual Incentives and Group Incentives: Best of Both Worlds or Social Dilemma?

Christopher Barnes, John Hollenbeck, Dustin Jundt, Scott DeRue & Stephen Harmon
Journal of Management, forthcoming

Equity theory emphasizes making distinctions between individual contributions to teams and then recognizing these with differentiations in rewards. However, social interdependence theory emphasizes maximizing cooperation in teams by compensating members equally. Several researchers have advocated offsetting the limitations of individually based incentives and group-based incentives by mixing the two. However, the authors contend that this puts team members in a social dilemma, leading them to focus on the individually based component. The authors find that in comparison to group-based only incentives, mixed individual/group incentives lead team members to perform faster but less accurately and focus on their own taskwork to the detriment of backing up behavior.


Optimal reward harvesting in complex perceptual environments

Vidhya Navalpakkam, Christof Koch, Antonio Rangel & Pietro Perona
Proceedings of the National Academy of Sciences, 16 March 2010, Pages 5232-5237

The ability to choose rapidly among multiple targets embedded in a complex perceptual environment is key to survival. Targets may differ in their reward value as well as in their low-level perceptual properties (e.g., visual saliency). Previous studies investigated separately the impact of either value or saliency on choice; thus, it is not known how the brain combines these two variables during decision making. We addressed this question with three experiments in which human subjects attempted to maximize their monetary earnings by rapidly choosing items from a brief display. Each display contained several worthless items (distractors) as well as two targets, whose value and saliency were varied systematically. We compared the behavioral data with the predictions of three computational models assuming that (i) subjects seek the most valuable item in the display, (ii) subjects seek the most easily detectable item, and (iii) subjects behave as an ideal Bayesian observer who combines both factors to maximize the expected reward within each trial. Regardless of the type of motor response used to express the choices, we find that decisions are influenced by both value and feature-contrast in a way that is consistent with the ideal Bayesian observer, even when the targets' feature-contrast is varied unpredictably between trials. This suggests that individuals are able to harvest rewards optimally and dynamically under time pressure while seeking multiple targets embedded in perceptual clutter.


Do humans produce the speed-accuracy trade-off that maximizes reward rate?

Rafal Bogacz, Peter Hu, Philip Holmes & Jonathan Cohen
Quarterly Journal of Experimental Psychology, May 2010, Pages 863-891

In this paper we investigate trade-offs between speed and accuracy that are produced by humans when confronted with a sequence of choices between two alternatives. We assume that the choice process is described by the drift diffusion model, in which the speed-accuracy trade-off is primarily controlled by the value of the decision threshold. We test the hypothesis that participants choose the decision threshold that maximizes reward rate, defined as an average number of rewards per unit of time. In particular, we test four predictions derived on the basis of this hypothesis in two behavioural experiments. The data from all participants of our experiments provide support only for some of the predictions, and on average the participants are slower and more accurate than predicted by reward rate maximization. However, when we limit our analysis to subgroups of 30-50% of participants who earned the highest overall rewards, all the predictions are satisfied by the data. This suggests that a substantial subset of participants do select decision thresholds that maximize reward rate. We also discuss possible reasons why the remaining participants select thresholds higher than optimal, including the possibility that participants optimize a combination of reward rate and accuracy or that they compensate for the influence of timing uncertainty, or both.


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