Managing Psychological Motivations in Contests

This paper studies how a firm can manage an agent’s psychological motivations in a contest through the design of incentive structures and disclosure schemeshow the contest outcomes are publicly announced. We run a set of laboratory experiments involving contests among salespeople and use the data to examine the levels of psychological motivations. We develop two new methods to separate the effect of psychological motivations from the effects of economic incentives and risk aversion. We find that recognizing multiple top performers without revealing the ranking among them and recognizing the single best performer both generate positive and significant psychological motivations. However, the relative performances of alternative disclosure schemes often depend on the spread of contest rewards. A smaller spread of contest rewards may induce higher levels of psychological motivations. Overall, this paper demonstrates the significant impact of an agent’s psychological motivations on her effort choice and underscores the importance to managers of jointly choosing incentive structures and disclosure schemes. * We thank participants from a number of seminars and conferences for helpful comments and suggestions. We gratefully acknowledge the financial support from the Social Sciences and Humanities Research Council Grant 489160 and AIMIA. Please direct all correspondence to Tanjim Hossain ([email protected]).