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MONETARY REWARDS AND DECISION COST IN EXPERIMENTAL ECONOMICS
Author(s) -
SMITH VER L.,
WALKER JAMES M.
Publication year - 1993
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1993.tb00881.x
Subject(s) - economics , argument (complex analysis) , rational expectations , opportunity cost , variance (accounting) , outcome (game theory) , econometrics , microeconomics , rational planning model , survey data collection , statistics , mathematics , biochemistry , chemistry , accounting , management
A survey of thirty‐one experimental studies which report data on the comparative effects of monetary rewards and opportunity cost shows: (1) several studies in which increased rewards shift the central tendency of the data toward the predictions of rational models; (2) in virtually all cases rewards reduce the variance of the data around the predicted outcome. This is consistent with a model in which rewards are balanced against decision cost in agent behavior and explicates the argument that when rational models fail it can be attributed to low opportunity cost of deviations from the rational prediction.