Abstract

http://ssrn.com/abstract=2111452
 
 

References (77)



 


 



The Effect of Performance-Based Incentive Contracts on System 1 and System 2 Processing in Affective Decision Contexts: fMRI and Behavioral Evidence


Anne M. Farrell


Miami University of Ohio - Farmer School of Business - Department of Accountancy

Joshua O. Goh


National Institutes on Aging

Brian J. White


University of Texas at Austin - Department of Accounting

June 9, 2014

Accounting Review, Forthcoming

Abstract:     
Managers may rely on emotional reactions to a setting to the detriment of economic considerations (“System 1 processing”), resulting in decisions that are costly for firms. While economic theory prescribes performance-based incentives to align goals and induce effort, psychology theory suggests that the salience of emotions is difficult to overcome without also inducing more deliberate consideration of both emotional and economic factors (“System 2 processing”). We link these perspectives by investigating whether performance-based incentives mitigate the costly influence of emotion by inducing more System 2 processing. Using functional magnetic resonance imaging and traditional experiments, we investigate managers’ brain activity and choices under fixed wage and performance-based contracts. Under both, brain regions associated with System 1 processing are more active when emotion is present. Relative to fixed wage contracts, performance-based contracts induce System 2 processing in emotional contexts beyond that observed absent emotion, and decrease the proportion of economically costly choices.

Number of Pages in PDF File: 55

Keywords: Performance-based incentives, affect, dual process models, knowledge accessibility, System 1 and System 2 processing, fMRI

Accepted Paper Series


Download This Paper

Date posted: July 18, 2012 ; Last revised: June 10, 2014

Suggested Citation

Farrell, Anne M. and Goh, Joshua O. and White, Brian J., The Effect of Performance-Based Incentive Contracts on System 1 and System 2 Processing in Affective Decision Contexts: fMRI and Behavioral Evidence (June 9, 2014). Accounting Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2111452 or http://dx.doi.org/10.2139/ssrn.2111452

Contact Information

Anne M. Farrell
Miami University of Ohio - Farmer School of Business - Department of Accountancy ( email )
800 East High Street
3094 Department of Accountancy / MSC 1002
Oxford, OH 45056
United States
Joshua O. Goh
National Institutes on Aging ( email )
Bethesda, MD 20892
United States
Brian J. White (Contact Author)
University of Texas at Austin - Department of Accounting ( email )
Austin, TX 78712
United States
Feedback to SSRN


Paper statistics
Abstract Views: 669
Downloads: 198
Download Rank: 101,536
References:  77

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.344 seconds