The Negative Consequences of Loss-Framed Performance Incentives

Lamar Pierce, Alex Rees-Jones and Charlotte Blank

American Economic Journal: Economic Policy, 2025, vol. 17, issue 1, 506-39

Abstract: Behavioral economists have proposed that incentive contracts result in higher productivity when bonuses are "loss framed"—prepaid then clawed back if targets are unmet. We test this claim by randomizing the pre- or postpayment of sales bonuses at 294 car dealerships. Although somewhat statistically imprecise, our analysis provides strong indications that the random assignment of loss framing had quantitatively important negative effects. We document that the negative effects of loss framing can arise due to an increase in incentives for "gaming" behaviors. Based on these claims, we reassess the common wisdom regarding the desirability of loss framing.

JEL-codes: C93 D91 J24 J33 L62 L81 (search for similar items in EconPapers)
Date: 2025
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Working Paper: The Negative Consequences of Loss-Framed Performance Incentives (2020)
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DOI: 10.1257/pol.20220512

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