The Effect of Financial Incentives and Task-specific Cognitive Abilities on Task Performance

We extend evidence on the interaction between financial incentives and cognitive abilities by focusing on the effect of task-specific abilities. In a memory-intensive task situated in an accounting context, the effect of accounting education on performance is stronger under financial incentives as compared to flat rate pay. Subjects with more accounting education respond stronger to financial incentives. Hence using incentives efficiently may involve targeting them at high-ability individuals. More generally, taking into account the incentive-ability interaction seems important when interpreting observed behavior in cognitively demanding lab and field economic environments.Financial incentives, Cognitive ability, Performance, Experiment

The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load

We identify the causal effect of cognitive abilities on economic behavior in an experimental setting. Using a forecasting task with varying cognitive load, we identify the causal effect of working memory on subjects' forecasting performance, while also accounting for the effect of other cognitive, personality and demographic characteristics. Addressing the causality is important for understanding the nature of various decision-making errors, as well as for providing reliable policy implications in contexts such as student placement, personnel assignment, and public policy programs designed to augment abilities of the disadvantaged. We further argue that establishing the causality of cognitive abilities is a prerequisite for studying their interaction with financial incentives, with implications for the design of efficient incentive schemes.Cognitive ability, Causality, Experiment, Financial incentives, Performance, Working memory

Three very simple games and what it takes to solve them

We study experimentally the nature of dominance violations in three minimalist dominance-solvable guessing games. Only about a third of our subjects report reasoning consistent with dominance; they all make dominant choices and almost all expect others to do so. Nearly two-thirds of subjects report reasoning inconsistent with dominance, yet a quarter of them actually make dominant choices and half of those expect others to do so. Reasoning errors are more likely for subjects with lower working memory, intrinsic motivation and premeditation attitude. Dominance-incompatible reasoning arises mainly from subjects misrepresenting the strategic nature (payoff structure) of the guessing games

Capital and Labor Effects in a Recall Task: More Evidence in Support of Camerer and Hogarth (1999)

This paper extends existing evidence on the interaction and relative productivity of cognitive effort and cognitive capital in an experimental environment. I focus on the impact of task-specific cognitive capital, which is central to the capital-labor argument of Camerer and Hogarth (1999) as well as related research in cognitive science and behavioral decision making. Using a memory recall task situated in an accounting setting, I show that the impact of taskspecific accounting knowledge on recall performance varies with the timing of the introduction of performance-contingent financial incentives. I further illustrate that subjects better endowed with task-specific accounting knowledge greater improve recall performance in response to the introduction of performance-contingent financial incentives. I draw implications for further research of the capital-labor-production framework and for compensation practices in experiments as well as work settings.Financial incentives, Cognitive abilities, Experiments, Field experiments.

Financial Incentives and Cognitive Abilities: Evidence from a Forecasting Task with Varying Cognitive Load

I examine how financial incentives interact with intrinsic motivation and especially cognitive abilities in explaining heterogeneity in performance. Using a forecasting task with varying cognitive load, I show that the effectiveness of high-powered financial incentives as a stimulator of economic performance can be moderated by cognitive abilities in a causal fashion. Identifying the causality of cognitive abilities is a prerequisite for studying their interaction with financial and intrinsic incentives in a unifying framework, with implications for the design of efficient incentive schemes.Financial incentives, Cognitive ability, Heterogeneity, Performance, Experiment

The Interaction between Financial Incentives and Task-specific Cognitive Capital: More Evidence in Support of Camerer and Hogarth (1999)

This paper extends existing evidence on the interaction between financial incentives and cognitive capital. I focus on the impact of task-specific cognitive capital, the role of which is central to the capital-labor-production framework of Camerer and Hogarth (1999) and has long been studied in cognitive science and behavioral decision research. Using a task situated in an accounting setting, I show that both financial incentives and task-specific cognitive capital, and especially their interaction, matter for performance. In particular, the effect of task-specific cognitive capital on performance is stronger under performance-based financial incentives as compared to flat-rate incentives. The interaction effect arises because performance-based financial incentives lead to better performance only for individuals with more task-specific cognitive capital. I draw implications for compensation practices in experiments as well as work settings.Financial incentives, Cognitive abilities, Experiments, Field experiments