Economics Seminar Series

David Huffman, University of Pittsburgh

Incentive Complexity, Bounded Rationality and Effort Provision

Dr. David Huffman.

Dr. David Huffman

This paper shows that, in a commonly-used class of workplace incentive scheme, dynamic incentives to reduce effort can be a shrouded attribute. Field experiments in a firm find only a weak response to such dynamic incentives. Consistent with complexity as an explanation, a structural model that accounts for other possible motives predicts a much stronger effort reduction. Online experiments with the same workers exclude alternative explanations by design, and show that simplifying the scheme, or high cognitive ability, can cause a response to emerge. Understanding online also predicts responding in the field experiments. Additional experiments with Amazon Mechanical Turk (AMT) workers shed light on determinants of incentive complexity. The paper (i) demonstrates that complexity affects effort provision and may allow firms to achieve better than second-best; (ii) shows that incentive effects may depend on cognitive ability; (iii) sheds light on mechanisms underlying complexity; and (iv) offers guidance for incentive design.

DATE: Friday, April 1st, 2022

TIME: 3:30-5:00pm EST

LOCATION: ZOOM Meeting ID: 942 8492 2150