Neural Mechanisms Underlying Paradoxical Performance for Monetary Incentives Are Driven by Loss Aversion
Employers often make payment contingent on performance in order to motivate workers. We used fMRI with a novel incentivized skill task to examine the neural processes underlying behavioral responses to performance-based pay. We found that individuals' performance increased with increasing incentives; however, very high incentive levels led to the paradoxical consequence of worse performance. Between initial incentive presentation and task execution, striatal activity rapidly switched between activation and deactivation in response to increasing incentives. Critically, decrements in performance and striatal deactivations were directly predicted by an independent measure of behavioral loss aversion. These results suggest that incentives associated with successful task performance are initially encoded as a potential gain; however, when actually performing a task, individuals encode the potential loss that would arise from failure.
Additional Information© 2012 Elsevier Inc. Accepted 27 February 2012; Available online 9 May 2012; Published May 9, 2012. We thank Colin Camerer and Cary Frydman for insightful comments and Ralph Lee for his assistance. This work was funded by grant NSF 1062703 from the National Science Foundation to J.P.O.D., funds from the Gordon and Betty Moore foundation to J.P.O.D., grants from the JST.ERATO to S.S., and by the Caltech/Tamagawa gCOE to S.S. and J.P.O.D.
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