Steak Knives, Tiger Woods and Prizes
Posted by Rich Sweeney on January 27, 2008
Today on Slate, Glengarry Glen Ross, who famously said, “As you all know, first prize is a Cadillac Eldorado. … Second prize is a set of steak knives. Third prize is you’re fired.” Jack Welch wisdom tells us that such schemes are effective because they provide incentives to perform. However, Brown’s research highlights the somewhat obvious fact that what matters to participants in any competition is not just the size of the prize, but the the expected value of the prize, adjusted for the probability of winning. Using data from the PGA, Brown found that mid to lower range players played demonstrably worse when Tiger Woods was in the field. Depending on your goals as a social planner/ competition organizer, Brown’s paper suggests that GE style incentives schemes may actually undermine rather than encourage performance. One the one hand, PGA’s multi-million dollar prizes appear to be working. Tiger Woods is the best golfer ever. But if you’re concerned about average or median player performance, such a prize scheme may actually not be such a good idea when there is a wide, discernible heterogeneity in skill level/ competence.
Ok I know that didn’t really have much at all to do with the type of prize we typically talk about on CT, but I thought it was an interesting paper nonetheless.