One size fits all? The interplay of incentives, effort provision, and personality

Abstract

Incentives are supposed to increase effort, yet individuals react differently to incentives. We examine this heterogeneity by investigating how personal characteristics, preferences, and socio-economic background relate to incentives and performance in a real effort task. We analyze the performance of 1,933 high-school students under a Fixed, Variable, or Tournament payment. Ability and beliefs about relative performance play a decisive role for productivity when payments are exogenously imposed. Yet, when given the choice to select the payment, also personality traits, economic preferences and socio-economic background matter. Algorithmic assignment of payments could improve productivity, as we show.