Bigger Stakes Decrease The Likelihood Of Success, Study Finds

Posted: 05/10/2012 2:50 pm Updated: 05/10/2012 2:50 pm

Don't choke!

It's advice we’ve all heard before, but it’s much easier said than done, according to a new study.

After a certain threshold, the more money someone is offered to perform a task, the more likely they are to screw up said task, according to a new study by Vikram Chib, a postdoctoral scholar at the California Institute of Technology. That's largely because people become worried when a huge potential prize could be lost, causing them to get nervous and freeze up.

"When they're actually doing the task, the thing that causes them to perform poorly is that they worry about losing a potential incentive they haven't even received yet," Chib said in a press release accompanying the study.

The findings have implications for high stakes fields like politics and business, according to Shinsuke Shimojo, coauthor of the study. In fact, the study may even call into question Wall Street's bonus culture, which in boom times rewards even the financial industry's lowest level employees with bonuses that in some cases dwarf the annual income of many Americans.

The findings of Chib's study mirror others that indicate offering someone a huge bonus may not be a guarantee that they'll perform superior work. Dan Ariely, a professor at Duke University, found that when a worker is offered more money to perform a job, their productivity generally increases, but not the quality of their work. In fact, after comparing the ability of three groups to perform certain tasks, Ariely found that the group that was given the biggest bonus performed the worst.

Will Wall Street take note? The majority of shareholders at Citigroup voted against giving the bank's CEO Vikram Pandit a $15 million pay package. Citi has had the worst stock performance of any big bank over the last decade, according to The New York Times, prompting one of the shareholders that voted against the package to note: "The plan put forth reveals a disconnect between pay and performance."

Other banks are slowing the pay gravy train as well. Morgan Stanley capped cash bonuses for its employees at $125,000 in 2011 and some of its executives got no bonus at all. At Goldman Sachs, bonus day this year was reportedly a “bloodbath," as some employees learned they were taking home smaller bonuses. Others found out they wouldn’t be getting any extra cash at all.

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Filed by Jillian Berman  |