Deposit? Yes, please! The effect of different modes of assigning reward- and deposit-based financial incentives on effort

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Abstract

The effectiveness and uptake of financial incentives can differ substantially between reward- and deposit-based incentives. Therefore, it is unclear to whom and how different incentives should be assigned. In this study, the effect of different modes of assigning reward- and deposit-based financial incentives on effort is explored in a two-session experiment. First, students' (n = 228, recruited online) discounting, loss aversion and willingness to pay a deposit were elicited. Second, an incentivized real-effort task was completed (n = 171, 25% drop-out). Two modes of assigning reward- or deposit-based financial incentives were compared: random assignment and 'nudged' assignment - assignment based on respondent characteristics allowing opting out. Our results show that respondents receiving nudged assignment earned more and persisted longer on the real-effort task than respondents randomly assigned to incentives. We find no differences in effectiveness between reward-based or deposit-based incentives. Overall, 39% of respondents in the nudged assignment mode followed-up the advice to take deposit-based incentives. The effect of deposit-based incentives was larger for the respondents who followed-up the advice than for respondents that randomly received deposit-based incentives. Overall, these findings suggest that nudged assignment may increase incentives' effect on effort. Future work should extend this approach to other contexts (e.g., behaviour change).

Original languageEnglish
Pages (from-to)1-29
Number of pages29
JournalBehavioural Public Policy
DOIs
Publication statusPublished - 15 Aug 2023

Bibliographical note

Funding Information:
The work reported in this manuscript was made possible through funding by Erasmus Initiative: Smarter Choices for Better Health and the Erasmus Trustfonds. The authors also acknowledge insightful comments provided by Wilbert van de Hout and Peter Wakker during discussions of preliminary versions of this work. 1

Publisher Copyright:
Copyright © The Author(s), 2023. Published by Cambridge University Press.

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