Working Paper: NBER ID: w18165
Authors: Steven D. Levitt; John A. List; Susanne Neckermann; Sally Sadoff
Abstract: Research on behavioral economics has established the importance of factors such as reference dependent preferences, hyperbolic discounting, and the value placed on non-financial rewards. To date, these insights have had little impact on the way the educational system operates. Through a series of field experiments involving thousands of primary and secondary school students, we demonstrate the power of behavioral economics to influence educational performance. Several insights emerge. First, we find substantial incentive effects from both financial and non-financial incentives on test scores. Second, we find that non-financial incentives are considerably more cost-effective than financial incentives for younger students, but were less effective with older students. Third, and perhaps most importantly, consistent with hyperbolic discounting, all motivating power of the incentives vanishes when rewards are handed out with a delay. Since the rewards to educational investment virtually always come with a delay, our results suggest that the current set of incentives may lead to underinvestment. Fourth, in stark contrast to previous laboratory experiments, we do not see an increased response of effort when rewards are framed as losses. Our findings imply that in the absence of immediate incentives, many students put forth low effort on standardized tests, which may create biases in measures of student ability, teacher value added, school quality, and achievement gaps.
Keywords: Behavioral Economics; Education; Incentives; Field Experiments
JEL Codes: C9; C93; H75; I20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| incentives (financial and nonfinancial) (M52) | student performance (D29) |
| immediate financial incentives (M52) | student performance (D29) |
| nonfinancial incentives (M52) | student performance (D29) |
| delayed rewards (D15) | low student effort (D29) |
| absence of immediate incentives (D52) | low student effort (D29) |
| framing rewards as losses (G41) | no increased effort (Y50) |