Deposit? Yes, please! The effect of different modes of assigning reward-and deposit-based financial incentives on effort 281 9 In this paper we conduct an online experiment with a real-effort task among 228 students. The setting intends to mimic a health behaviour intervention with effort now and benefits in the future (in our case, payments one week later). Note that we implemented financial incentives with different sizes. That is, respondents could earn either 8 (low incentive), 12 (medium incentive), or 20 (high incentive) euro in our experiment. Our experimental design enables studying both the assignment mode of incentives, as well as the incentive scheme on effort for incentives of different sizes. In the 2x2 experiment, our first basic contrast is a comparison of a treatment arm where individuals are randomized into incentive schemes versus a treatment arm where individuals receive informed advice about which incentive to take. That is, in the latter treatment arm respondents are not only offered a choice between deposit and reward-based incentives, but we additionally provide them with informed advice based on personal characteristics, e.g., loss aversion. The informed advice is implemented as a default selection of one of the two incentives schemes, with the opportunity to opt-out. In other settings, implementing or changing the default with the goal of helping respondents is often referred to as nudging.38 Hence, we will refer to this mode of assignment as nudged assignment. This contrast, therefore, sheds light on whether a nudged, yet voluntary choice enhances effort over simple random assignment to financial incentives. Our second basic contrast involves studying the effect of a deposit-based incentive scheme versus reward-based incentive scheme among the ones who were randomly assigned an incentive scheme. This second contrast sheds light on whether incentive schemes based on losses yield more effort than incentive schemes based on gains. Third, by comparing the effects of the deposit-based incentive scheme across the nudged (with free choice) and the random assignment groups, and by studying the characteristics of those that choose a deposit, we learn more about self-selection into depositbased incentive schemes and which individuals are most likely to take up depositbased incentive schemes and benefit from them. In line with the three contrasts in our experiment, our contribution to the literature is threefold. First, our work extends the literature on modes of assigning financial incentives by implementing nudged assignment. Earlier work in contract theory,39-41 has suggested that free choice among different types of incentives enables individuals to ‘sort’ into incentives that fit their preferences. That is, individuals sort into contracts that they expect will maximize earnings, but these expectations (e.g., in case of overconfidence) may be inaccurate.39 Choice also
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