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“Financial rewards are often a two-edged sword. They motivate people to work well, but when these financial rewards get very large they can become counterproductive and actually hurt performance. If our tests mimic the real world, then higher bonuses may not only cost employers more, but also hinder executives in working to the best of their abilities.

When I presented these results (the MIT and Indian studies) to a group of banking executives, they assured me that their own work and that of their employees would not follow the pattern we found in our experiments. I suggested that with a suitable research budget and their participation, we could examine their assertion, but they were not interested. [Emphasis mine] I strongly suspect that they were too quick to discount our results. I’d be willing to bet that for the vast majority of bankers, if not for all of them, a multimillion-dollar compensation package could easily be counterproductive because of the stress involved in attaining it, because of the fear of not getting it, and because it takes their minds off the job and focuses their attention on the large bonus.”

I’m looking forward to reading Mr Ariely’s book.

Bringing bankers into the reality-based community