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Bad News: An Experimental Study on the Informational Effects Of Rewards

Author

Listed:
  • Andrei Bremzen

    (CEFIR and New Economic School)

  • Elena Khokhlova

    (McKinsey & Company)

  • Anton Suvorov

    (Higher School of Economics)

  • Jeroen van de Ven

    (Amsterdam Center for Law and Economics, University of Amsterdam, and Tinbergen Institute)

Abstract

Psychologists and economists have argued that rewards often have hidden costs. One possible reason is that the principal may have incentives to offer higher rewards when she knows the task is difficult. Our experiment tests if high rewards embody such bad news and if this is correctly perceived by their recipients. Our design allows us to decompose the overall effect of rewards on effort into a direct incentive and an informational effect. The results show that participants correctly interpret high rewards as bad news. In accordance with theory, the negative informational effect coexists with the direct positive effect. © 2015 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Andrei Bremzen & Elena Khokhlova & Anton Suvorov & Jeroen van de Ven, 2015. "Bad News: An Experimental Study on the Informational Effects Of Rewards," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 55-70, March.
    • Handle: RePEc:tpr:restat:v:97:y:2015:i:1:p:55-70
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How bonuses backfire
      by chris dillow in Stumbling and Mumbling on 2011-09-19 19:06:31
    2. Ronnie O'Sullivan & the limits of incentives
      by chris in Stumbling and Mumbling on 2016-02-16 19:36:36
    3. Incentives as ideology
      by chris in Stumbling and Mumbling on 2016-04-06 17:35:07

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    More about this item

    Keywords

    incentive; psychologist; economist;
    All these keywords.

    JEL classification:

    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development

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