The Effect of Incentive Structure on Heuristic Decision Making: The Proportion Heuristic

Robert J. Oxoby ()

No 2857, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: When making judgments, individuals often utilize heuristics to interpret information. We report on a series of experiments designed to test the ways in which incentive mechanisms influence the use of a particular heuristic in decision-making. Specifically, we demonstrate how information regarding the number of available practice problems influences the behaviors of individuals preparing for an exam (the proportion heuristic). More importantly the extent to which this information influences behavior depends critically on the way in which performance incentives are structured. In particular, relative compensation schemes magnify the influence of this heuristic while joint compensation schemes dampen its influence. We discuss these results with respect to the literature on effective compensation.

Keywords: performance judgments; heuristics; incentives; experiments (search for similar items in EconPapers)
JEL-codes: C9 M5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-exp
Date: 2007-06
View list of references

Downloads: (external link)
ftp://repec.iza.org/RePEc/Discussionpaper/dp2857.pdf (application/pdf)

Related works:
Working Paper: The Effect of Incentive Structure on Heuristic Decision Making: The Proportion Heuristic (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:iza:izadps:dp2857

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute for the Study of Labor (IZA)
Address: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Contact information at EDIRC.
Series data maintained by Mark Fallak ().