Pradeep Dubey (),
John Geanakoplos () and
Ori Haimanko ()
Additional contact information Pradeep Dubey: Center for Game Theory, Department of Economics, SUNY at Stony Brook, Stony Brook, NY 11794, and Cowles Foundation for Research in Economics, Yale University, New Haven, CT 06520,USA
John Geanakoplos: Cowles Foundation for Research in Economics, Yale University, New Haven, CT 06520, USA
Ori Haimanko: Department of Economics, Ben-Gurion University of the Negev, Beer Sheva 84105, Israel
We show that if agents are risk neutral, prizes outperform wages if and only if there is sufficient pride and envy relative to the noisiness of performance. If agents are risk averse, prizes are a necessary supplement to wages (as bonuses).