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Decision Making Costs and Problem Solving Performance

Published online by Cambridge University Press:  14 March 2025

Tanga M. McDaniel  and
E. Elisabet Rutström
Tanga M. McDaniel*
Affiliation:
University of Cambridge, Department of Applied Economics, Sidgwick Avenue, CB3 9DE Cambridge, United Kingdom
E. Elisabet Rutström
Affiliation:
Department of Economics, Darla Moore School of Business, University of South Carolina, Columbia, SC 29208, USA
*
email: [email protected]
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Abstract

We report the results from an experimental study of how problem solving behavior is affected by financial rewards. We formulate three alternative hypotheses: costly rationality, extrinsic/intrinsic trade-off, and distraction effects. Subjects play a computerized version of the Tower-of-Hanoi game and report their beliefs about the optimal solution through a quadratic scoring rule. Subjects participate in one of two treatments: a high penalty and a low penalty. We find that eliciting beliefs, in addition to observing playing behavior, reveals useful information about subjects’ cognitive behavior. We reject our hypothesis that the increase in the extrinsic penalty affects the intrinsic valuation in such a way as to decrease the amount of effort applied.

Keywords

experimentsfinancial incentivesquadratic scoring rule

JEL classification

C91: Laboratory, Individual Behavior
Type
Research Article
Information
Experimental Economics , Volume 4 , Issue 2 , October 2001 , pp. 145 - 161
Copyright
Copyright © 2001 Economic Science Association

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