Psychological Incentives, Financial Incentives, and Risk Attitudes in Tournaments: An Artefactual Field Experiment

Charles Cadsby, Jim Engle-Warnick, Tony Fang and Fei Song
Additional contact information
Jim Engle-Warnick: McGill University
Fei Song: Ryerson University

No 1403, Working Papers from University of Guelph, Department of Economics and Finance

Abstract: Tournaments are widely used to assign bonuses and determine promotions. Tournament-based compensation is motivating because of the link between relative performance and financial rewards. However, performing relatively well (poorly) may also yield psychological benefits (pain). This may also stimulate effort. Through a real-effort artefactual field experiment with factory workers in China, we examine how both psychological and financial incentives, together with attitudes toward risk, may influence motivation and performance. For comparison purposes, Chinese undergraduate students also participated in a comparable laboratory experiment. We provided performance-ranking information both privately and publicly, with and without rank based financial incentives. Our results show that performance-ranking information had a significant motivational effect on average performance for students, but not for workers. Adding financial incentives based on rank provided little evidence of further improvements. Much of the difference between workers and students can be explained by differences in attitudes toward risk. Indeed, for both groups the size of both financial and psychological incentive effects is inversely related to individual levels of risk aversion, and is positive and significant both for workers and for students who are sufficiently risk-tolerant. Lastly, performance did not deteriorate when incentives were removed, suggesting that they worked through the encouragement of learning.

Keywords: incentives; social comparison; performance feedback; peer pressure; tournament; risk aversion; artefactual field experiment (search for similar items in EconPapers)
JEL-codes: C91 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-exp, nep-hrm, nep-tra and nep-upt
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Citations: View citations in EconPapers (1)

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Working Paper: Psychological Incentives, Financial Incentives, and Risk Attitudes in Tournaments: An Artefactual Field Experiment (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:gue:guelph:2014-03

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