Performance Manipulation: Labor Market Implications in AI-assisted Era

arXiv:2604.22230v2 Announce Type: replace-cross Abstract: Performance manipulation arises when agents exploit easily measurable, routine tasks to inflate observable outcomes without contributing genuine innovation or expert judgment. We formalize this phenomenon in a game-theoretic model in which agents allocate effort along two margins. Creative effort is non-routine cognitive labor whose return is complementary to the agent's private expertise; it is the scarce input that principals seek. Mechanistic effort is the execution of well-defined, rule-based tasks that raise performance independently of expertise, a commoditized input that AI heavily augments. We establish the existence of a symmetric, monotone pure-strategy equilibrium and show that performance-based screening remains viable so long as evaluations retain a sufficient creative component, but collapses into an uninformative pooling equilibrium once AI capability grows large enough to crowd out creative effort. Comparing contest allocations against a single-agent baseline isolates performance manipulation as the competition-induced over-investment in mechanistic effort, which we show is undertaken systematically by low-type agents but not high-type ones. We further prove that more sharply skewed reward structures mitigate this friction by eliciting greater creative effort across the participant pool. Finally, using a novel, language-model-based methodology to measure both effort types from nearly 1,500 Kaggle competition scripts, we provide robust empirical support for the model's predictions.

Abstract:Performance manipulation arises when agents exploit easily measurable, routine tasks to inflate observable outcomes without contributing genuine innovation or expert judgment. We formalize this phenomenon in a game-theoretic model in which agents allocate effort along two margins. Creative effort is non-routine cognitive labor whose return is complementary to the agent's private expertise; it is the scarce input that principals seek. Mechanistic effort is the execution of well-defined, rule-based tasks that raise performance independently of expertise, a commoditized input that AI heavily augments. We establish the existence of a symmetric, monotone pure-strategy equilibrium and show that performance-based screening remains viable so long as evaluations retain a sufficient creative component, but collapses into an uninformative pooling equilibrium once AI capability grows large enough to crowd out creative effort. Comparing contest allocations against a single-agent baseline isolates performance manipulation as the competition-induced over-investment in mechanistic effort, which we show is undertaken systematically by low-type agents but not high-type ones. We further prove that more sharply skewed reward structures mitigate this friction by eliciting greater creative effort across the participant pool. Finally, using a novel, language-model-based methodology to measure both effort types from nearly 1,500 Kaggle competition scripts, we provide robust empirical support for the model's predictions.

General Economics (econ.GN); Computer Science and Game Theory (cs.GT); Machine Learning (cs.LG)

arXiv:2604.22230 [econ.GN]

(or arXiv:2604.22230v2 [econ.GN] for this version)

https://doi.org/10.48550/arXiv.2604.22230 Focus to learn more arXiv-issued DOI via DataCite

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Performance Manipulation: Labor Market Implications in AI-assisted Era

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