Work is ordinary and necessary for most people, but some people work excessively ("work persistence"), seemingly driven by internal forces. We theoretically and experimentally investigate the role of relative performance incentives in causing or exacerbating work persistence. In our setting, agents perform a task over two stages. In the first stage, they can earn prizes, which are allocated either randomly or according to relative performance. Afterwards, they have the opportunity to continue working in a second stage, with payment by piece rate and no competition against others. Our theoretical model of motivated belief updating predicts that agents adjust their beliefs asymmetrically: they attribute their relative performance more to their productivity if they win a prize, and more to luck if they lose. This bias leads winners of the first-stage prize to increase their effort in the subsequent piece-rate stage, but with no corresponding decrease in work effort by losers. Results from a real-effort experiment confirm these predictions: winners' effort in the piece-rate stage is roughly 30 percent higher when earlier bonus prizes had been allocated by performance, compared to when those prizes had been allocated randomly. Losers' effort is also higher - not lower - though this difference is not significant.
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