CeDEx Seminar - Roberto Hernan-Gonzalez (Burgundy School of Business)

You Will not Regret it: Experiments on Randomized Incentives

Scholars have long emphasized the importance of setting specific goals and providing clear expectations in compensation contracts to boost work performance, but a casual observation of actual compensation practices suggests otherwise. Using both lab and field experiments, we show that randomization of bonus targets and piece rates can lead to higher performance than the best-available deterministic scheme. Furthermore, this effect can be sustained over time. We show that part of this effect is explained by regret motives, which lead workers to exert extra effort to avoid missing out on potential pay.