We study whether poverty can induce affective states that decrease productivity. In a controlled laboratory setting, we find that subjects randomly assigned to a treatment, in which they view a video featuring individuals that live in extreme poverty, exhibit lower subsequent productivity compared to subjects assigned to a control treatment. Questionnaire responses, as well as facial recognition software, provide quantitative measures of the affective state evoked by the two treatments. Subjects exposed to images of poverty experience a more negative affective state than those in the control treatment. Further analyses show that individuals in a more positive emotional state exhibit less of a treatment effect. Also, those who exhibit greater attentiveness upon viewing the poverty video are less productive. The results are consistent with the notion that exposure to poverty can induce a psychological state in individuals that adversely affects productivity.

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Working Papers

To boost employees’ performance, firms often offer monetary bonuses when production goals are reached. However, the available evidence indicates that the particular level at which a goal is set is critical to the effectiveness of this practice. Goals must be challenging yet achievable. Computing optimal goals when employees have private information about their own abilities may be impossible for an employer. To solve this problem, we propose a compensation scheme, in which workers set their own production goals and bonuses. We provide a simple model of self-chosen goals and test its predictions in the laboratory. The model predicts that (a) the self-chosen goal contract is more cost effective than a piece rate contract for an employer interested in attaining a desired level of output, and that (b) workers set goals that they systematically outperform. Our experimental data support both predictions. We also observe sharp gender differences in the experiment. The self-chosen goal contract increases the performance of men but not of women relative to a piece rate contract. Women set lower goals, but outperform them to a greater extent than men.

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  • “Social Status and Performance: Theory and Evidence”CentER Discussion Paper Series No. 2016-032.

This paper investigates the causal effect of social status on performance. I propose that this relationship takes place through a psychological mechanism: status shapes an individual’s beliefs about her performance abilities and these beliefs are fulfilled. A theoretical framework serves two purposes. First, it provides the conditions over the preferences and the belief formation of the agent that guarantees the existence of such effect. Second, it predicts that social status will generate performance differences among the low ability individuals, but not for high ability individuals. Low ability individuals keep up with or lag behind the rest of the agents when assigned the high or low status, respectively. Data from two experiments corroborate these predictions. I also observe that the randomly assigned status treatments lead to differences in performance beliefs among the low ability participants, but not for the high ability participants. This suggests that social status induces self-fulfilling beliefs for the less skilled individuals.

  • “Probability Distortions as Incentives”

This paper introduces a novel incentive scheme designed to take advantage of the regularity that individuals distort probabilities. Under the proposed incentive scheme, a worker is incentivized to perform a productive task with a lottery that pays with some probability a monetary compensation based on her performance or nothing at all. The principal is able to choose this probability and she makes this decision before the worker performs the task. Thus, her choice could influence the worker’s motivation. A theoretical framework and a laboratory experiment demonstrate that this incentive scheme outperforms standard performance-pay schemes that deliver, on expectation, the same monetary incentives. However, the probability at which the scheme is implemented is critical to its effectiveness. A small probability of performance compensation (10%) leads to higher performance than a standard performance-pay scheme, whereas medium and high probabilities (33.3 % and 50%) yield no differences. I present evidence demonstrating that the degree at which individuals overweight small probabilities drives this performance boost.


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Work in progress

Status: Experimental design

  • “The design of optimal credit and investment contracts ” 

Status: Experimental design