Operations Research 2025
Abstract Submission

236. Incentivization under Augmented Reality

Invited abstract in session TD-8: Human Factors and Strategic Tradeoffs in Emerging Technologies, stream Game Theory and Behavioral Management Science.

Thursday, 14:30-16:00
Room: H8

Authors (first author is the speaker)

1. David Wuttke
TUM Campus Heilbronn, Technical University of Munich, TUM School of Management, TUM Campus Heilbronn
2. Mrunal Mohadikar
Technical University of Munich

Abstract

Incentivization in operations is constrained by the difficulty of monitoring worker effort, unions’ demands for wage equality, and administrative friction. Digital technologies such as augmented reality (AR) enable fine-grained performance tracking, offering new ways to assess formative (process-based) rather than just summative (outcome-based) performance. This paper develops a game-theoretic model to examine when AR-enabled formative assessments can improve incentive alignment. We compare three contracts: wage-only, summative, and formative under varying degrees of agency problems, labor-market frictions, and administrative costs. In the absence of frictions, all contracts lead to the same outcome. However, the introduction of an agency problem immediately breaks this equivalence: wage-only contracts fail to elicit effort, whereas both summative and formative contracts remain effective and implement the first-best. When labor-market frictions require identical contracts and ensure that no worker is worse off, summative and formative contracts may still perform equally well—provided that workers’ capabilities are similarly ranked across tasks. But when worker capabilities vary by task, formative contracts become strictly superior: they allow incentives to better match individual strengths. Administrative frictions can shift preferences back toward simpler contracts, depending on their cost. Our findings inform the design of incentive schemes in digitally enabled workplaces and clarify how AR facilitates novel contract structures that accommodate institutional constraints while enhancing performance.

Keywords

Status: accepted

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