The impact of Financial Incentives on Decision Making (2006)

Author(s): Miller AD, Dobbs IM

    Notes: This project is concerned with using the ‘experimental approach’ to the study of whether financial incentives ‘work’ in complex decision making environments. The hypothesis is that, if a subject’s earnings are related to performance, this will induce individuals to use information systems more fully and efficiently, to learn faster and to take decisions more seriously, and hence to turn in higher levels of performance. The participants in the experiments play in essence a stylised ‘business game’ which involves a sequence of decisions over time. Individuals can choose to access information about their performance so far, and this information can be used to help inform decisions for the future. Accessing information is costly, but intelligent use of the information can translate into higher levels of profit performance. The participants in the experiment were either level 2 or level 3 undergraduates or postgraduates (MA, MSc and MBA students). Participants were divided into two groups – an ‘incentive group’ in which an individual’s earnings depend on the quality of their decision making, and a control group, for whom earnings are independent of their decisions. The study then examined the use of information and the ensuing level of performance for individuals in these two groups, and also looked at how performance is affected by individual characteristics. The individual characteristics measured were (i) the individual’s latest university grade point average, (ii) age, (iii) Sex, (iv) Nationality, and (v) whether the participant was undergraduate or post graduate.

      • Number of Pages: 1-80
      • Publisher: ICAS
      • Publication type: Authored book
      • Bibliographic status: Published