Effects of incentive framing on performance and effort: evidence from a medically framed experiment

Abstract

We study the effects on performance of incentives framed as gains or losses, as well as the effort channels through which individuals increase performance. We also explore potential spill-over effects on a non-incentivised activity. Subjects participated in a medically framed real-effort task under one of the three contracts, varying the type of performance incentive received: (1) no incentive; (2) incentive framed as a gain; or (3) incentive framed as a loss. We find that performance improved similarly with incentives framed as losses or gains. However, individuals increase performance differently under the two frames: potential losses increase participants’ performance through a greater attention (fewer mistakes), while bonuses increase the time spent on the rewarded activity. There is no spill-over effect, either negative or positive, on the non-incentivised activity. We discuss the meaning and implications of our results for the design of performance contracts.