Show me the money

Next up in this series of behavioural economics posts, inspired by Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality is how performance is affected by money and social stress.

Monetary stress and performance

Is it true that work is aversive and people only do it for the money?

Almost all animals, except cats will work for food. For humans money is an important motivator and bonuses do increase motivation. But do they increase performance?

Real life bonuses work under loss conditions. People aren’t given the money in advance but in their heads they’ve already spent it. I do this every time I work at an election – I know what I’m spending the money on before I get it and sometimes I actually spend it before it’s in the bank.

But do mechanical tasks work differently to mental tasks? Bonusus work for mechanical tasks but not for mental – in Dan’s experiments performance of mental tasks goes down.
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The intuition about business increasing performance relies on what we know about mechanical tasks. Would you want a surgeon to be thinking about what he could spend his bonus on if the operation goes well? It’s a state of ‘flow’ that drives the highest quality performance – getting into the zone – not thinking about bonuses. Bonuses can be distractingand may decrease motivation and performance.

Social stress and performance

When working in front of a group, social concerns are added to the financial motivation. However, anxiety caused by public pressure impedes performance.

Higher motivation does not necessarily translate into better performance. Do these results apply to Wall Streetexecutives or are they immune to the impact of big bonuses? Well, bankers think they are special but Dan’s experiments showed they are affected by social stress as much as the next man, or woman.

Bonuses, labour and motivation

Money is only one aspect of motivation –

  • small amounts of money can move relationships from the social to the financial domain
  • large amounts can increase motivation but decrease performance
  • we do not operate by simple rules of reward
  • motivation = money, meaning, creation, challenge, ownership, identity and pride

We should think of ways to motivate and make people happier besides paying them more. A thoughtful gift can mean much more than money and this could be time off, flexible working and healthcare.
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Efficiency versus meaning

During the Industrial Revolution Adam Smith believed that work should be specialised and that a production line environment is the most effective way to work. Centuries after Karl Marx stated that when work has meaning people are more connected to the output. Now we are in the middle of the Knowledge Revolution and the internet is changing the way we shop, live and think. Now we need to think about social motivation and how that can help people and organisations be more creative.


Tune of the week

Steve Wonder – Money (That’s What I Want)



Why you love your Billy bookcase

Apologies if you’re getting fed up of these behavioural economics posts, inspired by Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality on Coursera. I personally find the subject fascinating and I truly believe it’s a must for all comms people to get their heads round this economics/social psychology/behaviour junction.

Anyhoo, this week we’re looking at motivation and the IKEA effect.

Extrinsic versus intrinsic motivation

Even although mountain climbing can be a miserable experience at the time, people continue to repeat the experience. Why? Well they claim it’s about:

  • overcoming nature
  • a sense of achievement
  • a sense of accomplishment
  • competition
  • proving something to yourself

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But what would you do if you knew you couldn’t get to the top or if, once you came back down, you’d instantly forget everything about it.

Effort made in vain is de-motivating and the purpose of the activity contributes to its meaning. This applies as much to everyday work as it does to mountain climbing.

It turns out money is not the best motivator – people derive value from a wide range of sources.

The issue of meaning

We are motivated to do things that we find meaningful. Doing the same task over and over without a sense of progress can be the ultimate de-motivator. People understand the value of meaning but not the extent to which it matters. Not having meaning can choke the joy out of an activity you would otherwise have enjoyed.

Purpose and meaning are so important that they can be worth a substantial investment of time and money. An example of this is Google – they allow their employees to spend 20% of their time on other projects to make them feel more valuable.


Acknowledgement is just as important as meaning. It’s relatively easy to make people feel good about their work just by acknowledging their contribution. Simply ignoring people can be as demotivating as destroying their work. Dan proved this with a series of experiments where people’s work was either acknowledged, ignored or put through a shredder without being looked at.

The IKEA effect

How does labour lead to love?

Our liking of something isn’t just judged by what it is but by how much effort we have put into it. The more effort, the more we like it. This even extends to our children – the effort we expend on our kids increases our love for them and blinds us to the perspective of others. Another example of this is customisation such as T-shirts – this is about more than individual preferences as the effort invested also increases the liking of the product. However, too much effort can have negative consequences so it’s important to strike the correct balance.

Dan first noticed this when he realised he was more attached to a self-built piece of IKEA furniture than other more expensive ready-built pieces. He has also carried out many experiments asking people to place values on Lego models they’ve made themselves and models mad by others.

The not-invented-here bias

Are we over-committed to our own ideas? Investing even a small amount of energy in a solution makes people like it much more. This has a plus and a down side:

  • plus – it results in more time and passion devoted to our own ideas
  • down – it hinders our ability to consider the ideas of others

Cognitive dissonance

This is the tension that results when there is a mismatch between our beliefs and our behaviours.

Dan’s example of this at work is Zappos. Instead of interviewing customer services people they train them for a week then offer $2000 not to take the job. Why? When we work harder for something we value it more therefore Zappos employees believe they must love working there because they gave up $2000 for the chance. Retaining happy and motivated employees and eliminating the rest helps maintain a quality customer service.

Next week it’s monetary stress, social stress and performance under the spotlight.


Tune of the week

Beat Mafia & Diaz Grimm – Motivation

Don’t let doctors decide

A final few words on cheating from Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality on Coursera.

Cheating over time

People start by cheating just a little but at some point some people start cheating all the time. What does it take to reset the fudge factor to get people to stop cheating? Put it another way – what is the logic behind Catholic confession? You should cheat just before confession but it doesn’t work like that. Confession is like resetting to a clean page. in an experiment Dan asked people to write down their transgressions and ask for forgiveness – this decreased cheating but only temporarily.

Does cheating vary across cultures?

In a word, no. How do we balance this finding with a strong conviction in cultural differences. Experiments have no cultural context – they simply test the basic human capacity for moral flexibility. Culture influences specific domains but doesn’t change the core of morality. Culture can either shrink or expand the fudge factor – for example in some countries it is acceptable to bribe the police.

Medical decision-making gone wild

Think of these choices. You have terminal cancer and doctors have no idea how long you have left. Do you take chemo miserably for longer or do you take the palliative care and live as good a life as you can for a shorter time?

Medical decisions are unlike any other – they ask you to imagine the unimaginable.
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People often make bad decisions because they can’t imagine what life will be like going through treatment. Cancer patients feel like they have to do something, anything to get rid of it even if treatment is riskier than doing nothing.

Medical decisions often rely on information from doctors who don’t speak the same language as their patients. But it’s not just the patients that make strange decisions – doctors do too. Doctors over-estimate how long patients have to live because they must have hope that they are doing a worthwhile job. They also over promise to patients and experiments have shown that we weigh decisions differently for others than we do for ourselves.

Sorry if this has been a bit of a downer – let’s fix that with a good tune.


Tune of the week


Buchanan Brothers – Medicine Man

Fudging the nudge

Sorry folks, missed a post last week because I’ve ended up with two more courses running at the same time and it all got too much again – will I never learn?

This week I’m back to share what I learned on Dan Ariely’s behavioural economics MOOC A Beginners Guide to Irrationality on Coursera. This week we’re on to rational crime, the fudge factor and morality training.

Is dishonesty the result of a few bad apples or is it due to many people cheating just a little bit?

Well, there is no morality in economic theory which is why pure economics doesn’t work and why behavioural economics was born. Apparently lots of people cheat just a little bit and we carry out mental cost benefit analysis, weighing up the benefit of cheating against the possible costs of getting caught.

According to Dab we need a new economic model of dishonesty that doesn’t solely rely on cost benefit analysis.

The fudge factor

This is when we balance a view of ourselves positively against benefiting from cheating.
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Shrinking the fudge factor

Dan carried out an experiment where people took a test where there was an opportunity for cheating. Those who were asked to write down as many of the 10 commandments as they could before taking the test didn’t cheat at all. Reminding people of their morality makes them more honest and this work has resulted in many educational establishments introducing honour codes.

The bad news: morality training has no measurable long-term effect.

The good news: reminding people of morality just before being tempted to cheat does make a difference. Honour codes work better at the beginning of a process and they don’t work at the end as the cheating has already happened. An example of this in practice would be the work the Cabinet Office’s Behavioural Insight’s Team did with tax return forms where they moved the honesty signature box to the top of the form and saw fantastic results compared to when it had been at the bottom.

Dan’s research shows that in the US lots of people exaggerate by 10-15% on insurance claims. In their heads this doesn’t seem like a lot to individuals but tallied up costs a whopping $24 billion a year.

Expanding the fudge factor

Removing the direct link to money allows us to rationalise our dishonesty. In his experiments Dan discovered that cheating doubles when cash is replaced by tokens.

You can also expand the fudge factor by providing examples of others cheating – this is called social proof. A great example of this is when doctors surgeries around the country put up notices showing how many people didn’t turn up for their appointments. Instead of attendance going up, it went down because people saw it as almost normal behaviour to just not turn up instead of cancelling their appointment.

Do certain personality traits foster cheating?

Cheating is about how much we can rationalise our behaviour and according to Dan creative people are best at this because we can create little internal stories to explain our behaviour.

We can rationalise to a greater extent when there is:

  • a greater distance from money
  • social proof
  • creativity

During a series of experiments Dan lost $150 to 12 people who cheated a lot but $36,000 to 18,000 people who each cheated a little.

Next time I’ll look at conflicts of interest, cheating over time and across cultures and medical decision-making gone wild.

Tune of the week

Cheat song! (Whisper Parody) – by Emmanuel N. Phillip Hudson