Behavioral Economics and Psychology of Incentives

Posted: 1 Sep 2012

See all articles by Emir Kamenica

Emir Kamenica

University of Chicago - Booth School of Business - Economics

Date Written: July 2012

Abstract

Monetary incentives can backfire while nonstandard interventions, such as framing, can be effective in influencing behavior. I review the empirical evidence on these two sets of anomalies. Paying for inherently interesting tasks, paying for prosocial behavior, paying too much, paying too little, and providing too many options can all be counterproductive. At the same time, proper design of the decision-making environment can be a potent way to induce certain behaviors. After presenting the empirical evidence, I discuss the relative role of beliefs, preferences, and technology in the anomalous impacts of incentives. I argue that inference, signaling, loss aversion, dynamic inconsistency, and choking are the primary factors that explain the data.

Suggested Citation

Kamenica, Emir, Behavioral Economics and Psychology of Incentives (July 2012). Annual Review of Economics, Vol. 4, pp. 427-452, 2012, Available at SSRN: https://ssrn.com/abstract=2139244 or http://dx.doi.org/10.1146/annurev-economics-080511-110909

Emir Kamenica (Contact Author)

University of Chicago - Booth School of Business - Economics ( email )

Graduate School of Business
5807 S. Woodlawn Ave.
Chicago, IL 60637
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,007
PlumX Metrics