The effect of incentive structure on search in the secretary problem

Abstract

We tested the effectiveness of performance-based incentive structures using three incentive structures — commission base, best only and flat fee — and two levels of context — no context and house-selling — in an experiment in which participants made decisions in a variant of the secretary problem. Key measures of performance were the amount of search and the rounds in which the very best (optimal) offer was chosen. We found that having a commission-based proportional incentive did not produce better performance than having a flat payment for any of the performance measures considered. However, another performance-based incentive — the best only — increased the length of their searches and led to more optimal offers. These results applied both when there was no context and when the context was selling a house.

Neurophysiological insights into sequential decision-making: exploring the secretary problem through ERPs and TBR dynamics

“…The significant rise during the middle phase of the task implies an integration of sequential information and adjustment of expectations [ 12 ]. This finding is further supported by Hsiao and Kemp’s [ 26 ] research on incentive structures in decision-making. Additionally, our interpretation considers the role of internal decision thresholds, akin to ‘internal advice,’ influenced by task incentivization, as illustrated by Liu et al [ 5 ].…”

“…This table is adapted from the study conducted by Hsiao and Kemp [ 26 ]. However, in the design of Blocks 2, 4, and 6, an experimental modification was applied where the original bid values from Hsiao and Kemp [ 26 ] were increased tenfold.…”

“…This table is adapted from the study conducted by Hsiao and Kemp [ 26 ]. However, in the design of Blocks 2, 4, and 6, an experimental modification was applied where the original bid values from Hsiao and Kemp [ 26 ] were increased tenfold. This substantial augmentation of bid values was strategically employed to inject a broadened range of economic scenarios, thereby disrupting any potential conditioning to a constrained set of bid amounts.…”