David B. Huffman, University of Pittsburg

Incentive Complexity, Bounded Rationality and Effort Provision


This paper shows that dynamic incentives to reduce effort, embedded in a prevalent class of workplace incentive scheme, can be a shrouded attribute due to complexity and worker bounded rationality. Field experiments in a firm find a weak response to dynamic incentives, although a structural model predicts a strong response if workers understood, and reduced form analysis rules out many explanations. Online real-effort experiments with the workers also show a weak response, and the controlled setting makes shrouding the most plausible explanation. Simplifying the scheme, or with high cognitive ability, a response emerges, implicating complexity and bounded rationality as mechanisms. Understanding online also predicts responding in field experiments. Additional experiments with AMT workers shed light on determinants of complexity. The paper (i) demonstrates that complexity affects effort provision and may allow firms to achieve better than second-best; (ii) shows that incentive effects can depend on cognitive ability; (iii) sheds light on mechanisms underlying complexity; and (iv) offers guidance for incentive design.

David B. Huffman is a Full Professor of Economics at University of Pittsburgh. His PhD is from the University of California, Berkeley.

His research is mainly in the areas of Behavioral Economics and Labor Economics. About half of what he does is basic research on the heterogeneity in individual preferences regarding risk, time, and social interactions.

The other half is more applied, focusing on central questions in labor economics, usually with a behavioral angle. His research uses a variety of methodologies, including field experiments within firms and organizations, laboratory experiments, international surveys, and analysis of personnel data.

You can read more about David B. Huffman here

CEBI contact: Claus T. Kreiner