Nope, big bonuses don’t make people any more clever – on the contrary

A quote from a piece written by Dan Ariely in Wired:

The bankers who argue that huge bonus cheques are needed to “ensure superior performance from superior talent” are wrong, says Dan Ariely, professor of behavioural economics at Duke University. To test the effect of bonuses, a group of researchers, including myself, conducted three experiments. In the first, we gave subjects tasks that demanded attention, memory, concentration and creativity and promised varying levels of reward if they performed well. The big-bonus group performed the worst.

In the second test we asked one group of MIT students to perform tasks using cognitive skills (adding numbers) and another to perform mechanical skills (tapping at speed). For the second group, a higher bonus worked. In the first group, it lowered performance.

In the third test, students worked on anagrams, some in private, some in front of others. Those subjected to public scrutiny performed better. The implication is that the financial crisis happened not “in spite of private sector bonuses, but because of them”.

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