Toby at tipp(l)ing point

Perverse incentives 17 May 2009

The BBC World Service today reported research done by Duke University in the USA, which shows that higher incentives lead to worse, not better, performance. The experimenters took three groups of people and offered them a reward for performing a task well. The first group was offered a day’s pay, the second two weeks’ pay, and the lucky third group six months’ pay (they carried put the experiment in rural India, where they could afford it). The findings are totally counter-intuitive, at least to today’s economists. While there was no difference between the two less-incentivised groups, the third, golden-handcuffed group, scored not better, but worse!
Why should that be? The research leader theorises that two effects are at work: an incentive effect makes people want to perform better – but a countervailing stress effect means that when so much is at stake, people can’t focus on the task at hand at all! Good to know we are on the way to understanding that the intrinsic value of the job is more important than the reward.