Auction mechanisms for allocating individualized non-monetary retention incentives in complex decision environments evaluation via laboratory experimentation
Hahn, Kyle P.
Gates, William R.
Coughlan, Peter J.
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Interest in non-monetary incentives (NMIs) as a retention tool in the military services is increasinghowever, prior research indicates that providing the same NMIs to all retainees is an expensive and inefficient approach. This research used an experimental methodology to investigate the use of auction mechanisms that create individualized retention bonuses combining both monetary and non-monetary incentives. Specifically, the experiment examined individuals' behavior patterns in using these auction mechanisms while including NMIs with independent and combinatorial qualities (complements and substitutes). Prior research with NMIs has assumed an additive relationshiphowever, this is often not the case. Hypotheses suggested that experimental subjects would choose NMI combinations that maximize their personal compensation value and then appropriately adjust their bid to the optimal level. The experimental results of the study support the hypotheses. In all auction formats, individuals appropriately selected the optimal NMI combinations 70 percent of the time. Those choices that were considered complex were still chosen correctly 66 percent of the time, suggesting individuals do behave rationally when dealing with various combinations of NMIs. These results provide support for the practical use of such auction mechanisms for incorporating NMIs in the retention process.
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