Practice prompt · Q:economics-and-market-foundations/incentive-evidence-001

Use an incentive as a hypothesis, not a verdict

Check whether the learner identifies the incentive channel while preserving separate evidence requirements for behavior, causation, and intent.

Updated Aug 7, 2026 Review due Nov 7, 2026

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A compensation plan pays a bonus when reported quarterly revenue exceeds a target. Contract-signing activity also clusters near quarter end. Which conclusion uses the incentive evidence appropriately?

Choose the best answer. a The bonus changes the payoff from reaching the target and supports targeted testing; it does not by itself prove manipulation, causation, or intent. b The bonus proves managers manipulated revenue because they could benefit from doing so. c The bonus is irrelevant unless manipulation has already been proven.

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Answer: a

Choice a. Explain the changed payoff, plausible responses, and the transaction, control, communication, comparison, and contrary evidence needed before stronger claims.