Journal of Risk and Uncertainty

, Volume 19, Issue 1, pp 7-42

First online:

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

  • Colin F. CamererAffiliated withDivision of Humanities and Social Sciences 228-77, California Institute of Technology
  • , Robin M. HogarthAffiliated withUniversity of Chicago

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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.

experimental economics rationality bounded rationality judgment incentives experimental methodology