Enhancing the Efficacy of Teacher Incentives through Loss Aversion: A Field Experiment

Imagine that the U.S. women’s gymnastics team was awarded the gold medal during the opening ceremony of this year’s Olympics. The catch? They could only keep it if they performed up to snuff during the all-around competition. Would they be more or less likely to turn in a gold-medal performance? According to this study by Roland Fryer and colleagues, the answer is more likely. The study puts a new twist—and flip—on merit pay, investigating how the timing of monetary bonuses affects teacher performance. Instead of receiving bonuses after their students have demonstrated higher achievement, teachers in Fryer’s study were paid in advance and agreed to return the money at the end of the year if their students did not improve sufficiently. Fryer and colleagues implemented the initiative in 2010-11 in nine K-8 schools—all enrolling high percentages of low-income, minority students—in Chicago Heights, Illinois. Approximately 150 teachers—a full 93 percent of those in the schools—agreed to participate in the study. Teachers were randomly assigned to the control group or one of four treatment groups that differed according to whether teachers received bonuses up front or after demonstrating gains and whether bonuses was based on individual or team-based gains. Bonuses ranged up to $8,000. In short, Fryer & Co. found that students whose teachers received up-front bonuses showed statistically significant gains in math—roughly .2 to .3 standard deviations—a pattern that held whether teachers were compensated as a group or as individuals. No significant impact was detected among the group that received incentives in the traditional fashion, nor were findings robust in reading. Interestingly, effects were more pronounced for students in K-2 than in grades 3-8. There are a few noteworthy limitations to the study, particularly relative to scope and sample size; further, the outcome measure was a “low-stakes” diagnostic assessment, not the state test—it’s unclear if findings would look the same if the test was used for accountability purposes. Still Fryer et al. have added an interesting tumbling element to the merit-pay routine.

SOURCE: Roland G. Fryer, Jr., Steven D. Levitt, John List, and Sally Sadoff, Enhancing the Efficacy of Teacher Incentives through Loss Aversion: A Field Experiment (New York, NY: National Bureau of Economic Research, July 2012).

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