American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
The Negative Consequences of Loss-Framed Performance Incentives
American Economic Journal: Economic Policy
(pp. 506–39)
Abstract
Behavioral economists have proposed that incentive contracts result in higher productivity when bonuses are "loss framed"—prepaid then clawed back if targets are unmet. We test this claim by randomizing the pre- or postpayment of sales bonuses at 294 car dealerships. Although somewhat statistically imprecise, our analysis provides strong indications that the random assignment of loss framing had quantitatively important negative effects. We document that the negative effects of loss framing can arise due to an increase in incentives for "gaming" behaviors. Based on these claims, we reassess the common wisdom regarding the desirability of loss framing.Citation
Pierce, Lamar, Alex Rees-Jones, and Charlotte Blank. 2025. "The Negative Consequences of Loss-Framed Performance Incentives." American Economic Journal: Economic Policy 17 (1): 506–39. DOI: 10.1257/pol.20220512Additional Materials
JEL Classification
- C93 Field Experiments
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J33 Compensation Packages; Payment Methods
- L62 Automobiles; Other Transportation Equipment; Related Parts and Equipment
- L81 Retail and Wholesale Trade; e-Commerce