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

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).