Performance Incentives in Education: The Role of Goal Mismatch

We conduct a field experiment studying how financial incentives for achieving specific course grades affect university students, whether effects vary by ability, and whether allowing students to choose their goals improves outcomes. We find that incentives negatively affect performance, particularly among low-ability students assigned high goals. Survey data suggest this negative impact arises from a mismatch between assigned goals and students’ abilities, distorting their reference points and expectations. Allowing students to choose their goals partially mitigates this effect but does not eliminate it. Our results caution against incentives in education and highlight a novel mechanism through which incentives can backfire.