Experimenting in the lab in economics and monetary incentives

Review in : REVUE D'ECONOMIE POLITIQUE Volume: 116 Issue: 3 Abstract: A strong positive relation is generally assumed between monetary incentives and effort on the one hand, and between effort and performance on the other hand, which legitimates the introduction of monetary incentives in economic laboratory experiments. Still, the empirical impact of incentives on effort and/or performance appears to be rather mixed or even negative. We examine the ins and outs of the debate since they all are,International audienceA strong positive relation is generally assumed between monetary incentives and effort on the one hand, and between effort and performance on the other hand, which legitimates the introduction of monetary incentives in economic laboratory experiments. Still, the empirical impact of incentives on effort and/or performance appears to be rather mixed or even negative. We examine the ins and outs of the debate since they all are, in a more or less radical manner, an invitation to a more pragmatic attitude towards incentives. We first show that embarrassing empirical results cannot be ascribed to an alleged inappropriateness of the incentive procedure (as regards the level of incentives or the procedure itself), We then examine the robustness of the relation between incentives, effort, and performance and elaborate upon the reasons why incentives sometimes do not enhance (or even damage) effort and/or why effort sometimes does not induce better performance (whether it be ineffective or harmful upon it), Next, we discuss the peculiar case of experimentation in the loss domain, which raises the more fundamental question of whether monetary incentives can be introduced. We finally conclude on the need of a pragmatic use of monetary incentives, depending on the very features of the experimental design (including subjects' cognitive and psychological characteristics)