Learning for a bonus: How financial incentives interact with preferences

This paper investigates the effect of financial incentives on student performance and analyzes for the first time how the incentive effect in education is moderated by students’ risk and time preferences. To examine this interaction we use a natural experiment that we combine with data from surveys and economic experiments on risk and time preferences. We not only find that students who are offered financial incentives for better grades have on average better first- and second-year grade point averages, but more importantly, we find that highly impatient students respond more strongly to financial incentives than less impatient students. This finding suggests that financial incentives are most effective if they solve educational problems of myopic students.