Cheer Up: The Effect of Mood and Performance-Dependent Incentives on Creativity

Abstract

We use an experiment to investigate how incentive scheme and mood influence creative performance. The popular business press, as well as anecdotal evidence from artists and corporate practice, suggests that being in a positive mood leads to improved creativity, and companies that operate in knowledge industries invest considerable resources in measures aimed at improving employee mood. We extend the literature by examining the effect of mood on creativity in compensation contexts where participants create rebus puzzles with compensation that is either fixed, performance-dependent based on the quantity of output, or performance-dependent based on the creativity of output. A relatively positive or negative mood is induced through the use of previously validated mood statements. We find a positive mood compared to a negative mood leads to more highly creative output (i.e., puzzles that receive top-quartile creativity ratings) for fixed compensation, but not for quantity-dependent or creativity-dependent compensation. These results are consistent with a crowding out of the effect of positive mood on creativity by performance-dependent compensation. Supplemental analysis indicates that this crowding out occurs after time passes rather than instantaneously, as mood significantly affects the creativity of the first puzzles produced regardless of compensation form. We also find that the combination of a negative mood and quantity incentive leads to the production of the greatest number of puzzles that are of the lowest creative quality.