One size fits all? Designing financial incentives tailored to individual economic preferences

Abstract

Financial incentives are often designed to benefit from behavioral insights. Individuals' preferences for such behaviorally inspired incentives are rarely studied, nor is the role played by the behavioral insights that motivated them. This study aimed to let individuals design their own incentives (i.e., tailored incentives) and to explore which individual characteristics are associated with these preferences for tailored incentives. A sample of students (n = 182) tailored hypothetical incentives for visiting the gym. Incentives could be tailored by: (1) committing personal funds; (2) picking weekly payouts (increasing or decreasing); and (3) introducing payout risk while increasing value. Afterwards, (inter alia) loss aversion, probability weighting, time discounting, present bias, cognitive reflection and trait self-control were measured. A large majority indicated being willing to deposit their own money, and only very few individuals selected risky incentives. These heterogeneous preferences for financial incentives are poorly predicted by the individual characteristics measured (i.e., economic preferences and psychological traits). These results suggest that preferences for tailored incentives could be studied as input for the design of financial incentives. However, it is unclear whether tailoring incentives improves cost-effectiveness, as the lack of association between tailored incentives and the behavioral insights that motivate them has multiple conflicting interpretations.