Behavioral economics has provided striking insights that are contrary to the standard economic framework. Years of experiments, in laboratories as well as in the field, have shown the diversity of human actions and the failure to predict these actions with standard (neo‐)classical assumptions of plain utility maximization. Numerous researchers have contributed impressive results, particularly to the field of incentives and motivation. The evidence suggests that individuals give more importance to the present than to the future and suffer more from losses than they enjoy gains of equal magnitude. They tend to behave with an aversion to inequality and can be motivated with non-monetary rewards. However, so far, one important field has been left aside, namely studies with clear impact on the educational system and the students involved in it. This is unfortunate to the effect that unambiguously positive results on student performance and by association education can have vast impacts not only on student life but also on the whole economy. To fill this gap, we conducted several field experiments to test behavioral principles on approximately 6,500 elementary and high school students in Chicago. Immediately before a standardized, computer‐based test, of which the students need to take three a year, the students received information about one specific of several incentive schemes. Students could receive a reward if they improved their performance on the test in comparison to their previous test score. The incentives were either monetary or non‐monetary and rewarding followed either immediately after the test or with a delay of one month. Additionally, some incentives were framed as losses, meaning that students received the reward beforehand and were informed the reward would be taken away, if they did not improve their performance. The results of our set of experiments are in line with previous research, showing that incentives matter. In particular, we show that financial incentives, if large enough, have positive effects on performance, confirming conventional wisdom. Furthermore, we demonstrate effects of rather unusual incentive schemes. The possibility of losing a just received $10‐bill or trophy is more powerful than the chance of being rewarded after the test. We also find a considerably larger effect of non‐monetary rewards ‐ trophies in our case ‐ than of monetary payments of either $10 or $20 for younger students. This, however, is not true for older students. Moreover, only immediate incentives work whereas a delay of even one month does not increase motivation at all. This has important policy implications. We cannot confirm the common fear that paying kids reduces their motivation to perform well in the absence of rewards. Furthermore, given the fact that the greatest returns of education come with a delay of months (or even years), it seems currently schools lack lack adequate incentive schemes to make pupils perform well.
Levitt, Steven D., John A. List, Susanne Neckermann and Sally Sadoff (2012), The Behavioralist Goes to School: Leveraging Behavioral Economics to Improve Educational Performance, ZEW Discussion Paper No. 12-038, Mannheim. Download