Evidence gathering under competitive and noncompetitive rewards

Abstract

Reward schemes may affect not only agents' effort, but also their incentives to gather information to reduce the riskiness of the productive activity. In a laboratory experiment using a novel task, we find that the relationship between incentives and evidence gathering depends critically on the availability of information about peers' strategies and outcomes. When no peer information is available, competitive rewards can be associated with more evidence gathering than noncompetitive rewards. In contrast, when decision-makers know what or how their peers are doing, competitive rewards schemes are associated with less active evidence gathering than noncompetitive schemes. The nature of the feedback -- whether subjects receive information about peers' strategies, outcomes, or both -- also affects subjects' incentives to engage in evidence gathering. Specifically, only combined feedback about peers' strategies and performance -- from which subjects may assess the overall relationship between evidence gathering, riskiness, and success -- is associated with less evidence gathering when rewards are based on relative performance; we find no similar effect for noncompetitive rewards.