Planet Money
8:33 am
Wed September 19, 2012

Teachers Get Bonuses, With A Catch: They May Have To Pay Them Back

Originally published on Wed September 19, 2012 7:16 am

NPR's Shankar Vedantam has a story today about a study conducted by a bunch of economists. He writes that they:

divided 150 teachers into three groups. One group got no incentive; they just went about their school year as usual. A second group was promised a bonus if their students did well at math.

The third group is where the psychology came in: The teachers were given a bonus of $4,000 upfront — but it had a catch. If student math performance didn't improve, teachers had to sign a contract promising to return some or all of the money.

The study is based on a principle from behavioral economics called "loss aversion." In the context of the study, loss aversion basically means that giving back a $4,000 bonus is much more painful than not getting the bonus in the first place.

Here's what the economists found:

In line with earlier work, List and his colleagues found that students of teachers who received the traditional bonus performed no better than students of teachers who received no incentive at all. But List found that students of teachers who were given the bonus upfront showed significant improvement in math test scores.

"What we found is strong evidence in favor of loss aversion," he said. "Teachers who were paid in advance and [were] asked to give the money back if their students did not perform — their [students'] test scores were actually out of the roof: two to three times higher than the gains of the teachers in the traditional bonus group."

Here's the abstract of the study. Here's Vedantam's story.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.