When there are high financial incentives to succeed, people can become so afraid of losing their potentially big payoff that their performance suffers.
It is an unexpected conclusion, said researchers at the California Institute of Technology, who suggest that the prevailing notion is that the more people are paid, the harder they will work.
But after looking at brain scans of volunteers performing a specific motor task, the researchers report as people become worried about losing a potential prize, their performance suffers.
And the more someone is afraid of loss, the worse they perform, said Vikram Chib, Ph.D., a postdoctoral scholar at and lead author of the study.
In the study, each participant was asked to control a virtual object on a screen by moving an index finger that had a tracking device attached to it. The task was to place the object, which consisted of two weighted balls connected by a spring that stretched and contracted as a weighted spring would in real life, into a square target within two seconds.
The researchers controlled for individual skill levels by customizing the size of the target so that everyone would have the same success rate. That way, people who happened to be really good or bad at this task would not skew the data, they said.
After a training period, the subjects were asked to perform the task while inside a functional magnetic resonance imaging (fMRI) machine, which measures blood flow in the brain. By monitoring blood flow, the researchers said they can pinpoint areas of the brain that turn on when a task is performed.
The task began with the researchers offering the participants a range of rewards up to $100 if they could successfully complete the task within the time limit. At the end of hundreds of trials, each with varying reward amounts, the participant was given their reward, based on the result of just one of the trials, picked at random.
As expected, the team found that performance improved as the incentives increased, but only when the cash reward amounts were at the low end of the spectrum. Once the rewards passed a certain threshold, performance began to fall off.
Incentives are known to activate a part of the brain called the ventral striatum, Chib said, noting the researchers expected to see the ventral striatum become increasingly active as they bumped up the prizes.
The researchers found that activity in the striatum initially did increase with rising incentives. But once the volunteers started doing the task, striatal activity decreased with rising incentives. The researchers also noticed that the less activity they saw in the striatum, the worse that person performed on the task.
“When people see the incentive that they’re being offered, they initially encode it as a gain,” Chib said. “But 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. We’re showing loss aversion even though there are no explicit losses anywhere in the task — that’s very strange and something you really wouldn’t expect.”
To further test their hypothesis, Chib and his colleagues decided to measure how loss-averse each participant was with a coin-flip game.
Each person was offered varying win-loss amounts (such as $20-$20, $20-$10, $20-$5) and then given the opportunity to either accept each possible gamble or decline it. The win-loss ratio at which the subjects chose to take the gamble provided a measure of how loss-averse each person was, the researcher said, noting someone willing to gamble even when they might win or lose $20 is less loss-averse than someone who is only willing to gamble if they can win $20 but only lose $5.
Once the numbers were crunched and compared to the original experiment, it turned out that the more averse a participant was, the worse they did on the task when the stakes were high — and for a particularly loss-aversive person, the threshold at which their performance started to decline did not have to be very high.
“If you’re more loss-averse, it really hurts you,” Chib said. “You’re going to reach peak performance at a lower incentive level and your performance is also going to be worse for higher incentives.”
While this study only involved a specific motor task and financial incentives, these results may well be universal, said Shinsuke Shimojo, Ph.D., the Gertrude Baltimore Professor of Experimental Psychology and another coauthor of the study. “The implications and applications can include any sort of decision-making that contains high stakes and uncertainties, such as business and politics.”
The findings might be used to develop new ways to motivate people to perform better or to train them to be less loss-averse, according to the researchers.
“This loss aversion can be an important way of deciding how to set up incentive mechanisms and how to figure out who’s going to perform well and who isn’t,” Chib said. “If you can train somebody to be less loss-averse, maybe you can help them avoid performing poorly in stressful situations.”
The research was published in the May 10 issue of the journal Neuron.