Personnel Economics Application Paper
Tournament is a kind of reward system where fixed rewards are used for a fixed group of people and the “distribution of rewards is based on the order of the participants’ performance” (Lazear & Oyer, 2009, p. 9). In this particular situation, four agents in one of Mitch & Murray’s offices are given a strong incentive to succeed in a sales tournament. Mitch & Murray uses a set of prizes that diminish in value as a person’s relative performance gets lower. The top seller will win himself a Cadillac, the second will win himself a set of steak knives, and the others will be out of job (Glengarry Glen Ross, n.d.). In response to the given prizes, four agents react in different ways.
For Ricky …show more content…
All four employees are afraid of getting the third prize, being fired, but with their own unique utility curve and risk preference, they choose to respond in the way that leads to the consequence with no surprise.
Sometimes a large prize can provide enough incentive for the employee to exert more effort to work, but sometimes it cannot. The size of the prize is not the key factor that affects a worker’s working attitude, on the other hand, the cost of the employee’s effort and the role of luck are what may affect the incentive. Furthermore, to motivate the employee to work harder, we have to take into consideration of the employee’s needs from the psychological perspective, for example, in this case, the fancy Cadillac is the motivation only for Ricky, not for the