How financial incentives affect performance - research by the IES team at Vox.EU

Economists tend to assume that financial rewards motivate people to rapidly and sustainably improve performance. But many psychologists point out that the opposite can be true - money is only an external motivation, which, if not strong enough, can in some cases reduce performance by reducing internal motivation: it displaces the joy of working on a task that we would feel , if we weren't doing it for money. However, most of the models used in the economy so far do not take into account the possible decrease in motivation and performance with the promise of a financial reward.

The topic caught the attention of our student Petr Čala, who with his bachelor's thesis "Do Money Rewards Motivate People?" A Meta-Analysis”, led by Zuzana Havránková, won the Dot Award, designated for the best theses defended at IES. Together with other colleagues from IES - prof. Tomáš Havránek, Jiří Novák and with our graduate Jindřich Matoušek then addressed the topic in more detail: They looked at 44 experimental economic studies and tested the relationship between promised financial reward and performance. After correcting for publication bias and differences in experimental contexts, their analysis suggests a negligible effect of financial incentives on performance in all field experiment contexts. It turns out that incentives in the form of financial rewards, such as offering people money to get vaccinated against Covid-19, may be less effective than commonly thought.

They summarized their findings and details from the research at the initiative of prof. Richard Baldwin in the article How financial incentives affect performance on the Vox.EU portal, which publishes analyzes by leading European economists.