Why small prizes make it easier to win

5th July, 2008

We’ve known for a century that laboratory rats choke under pressure. Back in 1908, two researchers, Robert Yerkes and John Dodson, repeatedly placed rats in a cage and gave them a choice between two pathways. Each time, one of the pathways was lined with black card and delivered an electric shock; the other pathway was lined with white card and was safe.

Yerkes and Dodson varied the intensity of the shock: some rats always got a ferocious zap, other rats always got a mild buzz. The rats which learned quickest were the ones receiving neither mild shocks nor strong shocks, but shocks somewhere in the middle. When the “incentive” to learn was too big, the effect was counterproductive.

So much for rats. Is the same true of humans offered financial incentives? To answer the question, four economists, Dan Ariely, Uri Gneezy, George Loewenstein and Nina Mazar, decamped to rural India to conduct an experiment. They knew that when the experiment’s volunteers were very poor, it would be easier to pay them enough money to make heads spin and hands shake.

The researchers paid bonuses if the volunteers were able to complete assorted mental and physical challenges. The tasks varied from physical ones, such as throwing balls at a target, to concentration-based challenges, such as bashing away on Simon, a toy from the late 1970s that requires the player to memorise sequences of colours.

Just as with Yerkes’ and Dodson’s rats, the participants were offered low, medium and high incentives. Some of the participants stood to win up to a day’s income, others about two weeks’ income, and those with most to gain could, in theory, have scooped about six months’ income. But they didn’t: instead, they choked under the pressure.

Those on low or medium incentives managed to win just over 35 per cent of the available money, while those on the highest incentives cracked, winning less than 20 per cent. (If hell was designed by behavioural economists, sinners would be forced to play Simon for their souls.)

However, one does not need to torment Indian villagers to observe choking under pressure; it is much more fun to torment professional footballers. The torture of choice is the penalty shoot-out, now widely used as a tiebreaker in the most important games, including the most recent Champions League and World Cup finals.

In a penalty shoot-out, each team takes it in turn to try to score a goal from the penalty spot. There might well be additional pressure on the second team, because most penalty attempts are successful, and so the second team tends to be trying to catch up rather than draw ahead.

Between 1970 and 2003, the team which went first was chosen randomly. Since 2003, a coin-toss has given one captain the chance to choose whether to go first or second. That rule change gave two economists, Jose Apesteguia and Ignacio Palacios-Huerta, an opportunity to investigate pressure in a seriously high-stakes environment.

They found that before 2003, the team lucky enough to be forced to go first won more than 60 per cent of the time. This is a huge advantage, and professionals are well aware of it. Since the rule change, most captains have chosen to go first when given the option.

Yet there are exceptions. The Italian team recently lost a penalty shoot-out to the Spanish after their captain, Gianluigi Buffon, won the toss and chose to go second. He might have had a different perspective: as the team’s goalkeeper, when his team-mates shot second, he was able to go first. Whatever the reason, the choice backfired, as history would have suggested.

Professors Apesteguia and Palacios-Huerta are delighted with the result. Presumably this is because it is a powerful vindication of their research, and not because they are Spanish.

Also published at ft.com, subscription free.

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