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)


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