Do Performance-Contingent Incentives Help or Hinder Divergent Thinking?

43 Pages Posted: 12 Feb 2021

See all articles by Steven J. Kachelmeier

Steven J. Kachelmeier

University of Texas at Austin

Alan Webb

University of Waterloo - School of Accounting and Finance

Michael G. Williamson

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: December 8, 2020

Abstract

Although divergent thinking generates multiple unconventional approaches to a problem or challenge, claims from prior experimental studies that incentives hinder divergent thinking often involve problems that have only one solution. In our first experiment, we replicate the negative effect of performance-based incentives in such settings, finding that participants solve fewer insight problems under performance-based pay than under fixed pay. But in a second experiment in which we modify these same problems to allow more than one unconventional solution, participants with performance-based pay identify significantly more divergent solutions than do their fixed-pay counterparts. We also find evidence that incentives stimulate increased divergent thinking in a third experiment in which participants design rather than solve insight problems. Overall, our findings suggest that the negative effect of performance-contingent incentives in some settings is more a reflection of the overly restrictive nature of these settings than the failure of incentives to stimulate divergent thinking.

Keywords: Divergent thinking, incentives, fixation, creativity, intrinsic motivation

JEL Classification: M41

Suggested Citation

Kachelmeier, Steven J. and Webb, Alan and Williamson, Michael G., Do Performance-Contingent Incentives Help or Hinder Divergent Thinking? (December 8, 2020). Available at SSRN: https://ssrn.com/abstract=3745282 or http://dx.doi.org/10.2139/ssrn.3745282

Steven J. Kachelmeier

University of Texas at Austin ( email )

Department of Accounting
2110 Speedway, Mail Stop B6400
Austin, TX 78712
United States
512-471-3517 (Phone)
512-471-3904 (Fax)

Alan Webb

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

Michael G. Williamson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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