Perverse effects of incentives

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Perverse effects of incentives

• Emily Haisley
• Fall 2005

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Outline

• Perverse effect outcome is opposite of what is
  expected or intended
• Incentives
• Punishment
• Goals
• Consequences of incentives on self-serving
  cognitions
• The Folly of Rewarding A While Hoping for B
• How much should we be motivated by

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Perverse effects of incentives

• IQ Experiment
• no payment 28.4
• 2.5 cents 23.07
• 25 cents 34.7
• 75 cents 34.1
• The Donation Experiment
• no payment 238.60
• 1 commission 153.60
• 10 commission 219.30

87 prefer their worker get paid 2.5 cents over
0
76 prefer their worker get paid a 1
commission over no commission
Q What do you think happens with verbal
rewards, i.e. positive reinforcement?
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Perverse effects of incentives

• Intrinsic motivation driven by internal rewards,
  e.g. interest, belief that it is the right thing
  to do, meaning, flow, improvement in
  self-concept, learning
• Extrinsic motivation driven by the promise of an
  incentive/reward external to the self
• If an incentive is given for an interesting or
  meaningful activity, intrinsic motivation
  decreases

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Perverse effects of punishment

• Day Care Study (2.50 fine increased bad
  behavior)
• Pre-fine lateness 8
• Lateness during fine 17
• Post-fine lateness 17
• Q Explanations for result?

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Perverse effects of punishment

• Freedmans study on children
• Children were told that they would be punished
  for playing with a certain toy so they did not
  while the experimenter was there to punish them.
• However, they gravitated to the toy several weeks
  later
• When children were told that playing with a
  certain toy was wrong, they stayed away from it
  permanently
• Q How would you design sanctions in an
  organization?

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How to give people more pain (more work) and have
them like it.

• Memory is partly reconstructive and is influenced
  by these effects
• Recency Effects
• Primacy Effects
• Salience
• Findings on the mental construction of pain
• Memory of pain is not the total subjective
  unpleasant feelings
• Rather it depends on memory effects and the fact
  that people just love increasing trends
• Acceptance of more pain/work low level at first,
  jump to a high level (but not too high), never
  too much, less and less towards the end
• Making a good impression 1st impression is key,
  minimize huge errors, hit a few high points,
  get better as you go, end on a high point

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Perverse effect of goal setting?

• Goals goals can be too motivating
• - People dont deviate from the goal
• - No exceeding the goal
• - No sense of the bigger picture
• - No creativity
• - The time frame over which the goal is set may
  have unintended influence over behavior
• Dieting
• NYC cab divers

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Ever wonder why its impossible to get a cab on a
rainy day?

• New York City cabdrivers wages fluctuate on a
  daily basis due to demand shocks caused by
  weather, subway breakdowns, day-of-the-week
  effects, holidays, conventions, etc.
• On busy days, drivers spend less time searching
  for customers and thus earn a higher hourly wage.
  
• Unlike most workers, they choose the number of
  hours they work each day because drivers rent
  their cabs from a fleet for a fixed fee (or own
  them) and can drive as long as they like during a
  continuous twelve-hour shift.

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What the cabbie study has to say about goals

• Wage elasticities are supposed to show perfect
  positive correlation between available wage and
  hours worked (r 1).
• Elasticities for New York cabbies reflect nearly
  perfect negative correlation (r 1)!!! What is
  going on here?
• The overwhelming percentage of cab drivers set an
  earnings target (e.g., 150 or double the rental
  fee). When they make their target, they feel
  satisfied and go home. So, what happens?
• When it rains, the drivers make their money
  sooner and go home earlier. When its beautiful
  outside, they hang around for the entire shift
  trying to make their earnings goal.
• Results indicate that having a goal serves as a
  motivator because it influences ones reference
  point, which defines a loss and a gain

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Careful bracketing goals over time

• Many people set goals over a 24 hour period. If
  they deviate from the goal, the day is shot,
  and all self-control goes out the window
• Dieting
• Getting work done
• Budgeting money??
• (As an aside Self-control is a resource that has
  the properties of a muscle.)

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The Letdown Post Pellet Pause

• It's much harder to keep a championship than to
  win one. After you've won once, some of the key
  figures are likely to grow dissatisfied with the
  role they play, so it's harder to keep the team
  focused on doing what it takes to win. Also,
  you've already done it, so you can't rely on the
  same drive that makes people climb mountains for
  the first time winning isn't new anymore. Also,
  there's a temptation to believe that the last
  championship will somehow win the next one
  automatically.
• Bill Russell, Second Wind

How do you keep people motivated? REFRAME THE
GOAL!
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Goal-Setting Pitfalls Potential Solutions

• Goal-setting can be a very effective mechanism
  for improving performance in an organization, but
  only if managed well. There are a number of
  pitfalls that must be avoided for goal-setting to
  be effective.

Pitfall
Potential Solution
Excessive risk taking
Specify acceptable risk levels for the employee
and the organization
Increased stress
Adjust goal difficulty, increase staff as needed,
and ensure that employees have the skills
necessary to accomplish their goals
View of goals as ceilings rather than floors
Reward those who exceed their goals
Ignoring non-goal areas
Make sure that goals are comprehensive
developed for all important areas of performance
Short-range thinking
Increase the time span of goals Connect to
broader mission
Dishonesty and cheating
Set an example of honesty in actions, give
frequent feedback, and be open to negative
information to avoid a climate of high pressure
and low support
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Unconscious consequences of incentives on
self-serving cognition

• Awareness of your incentives can prevent you from
  adequately processing information
• People who knew their role when they read the
  information for a mock trial were unable to
  predict outcomes of real judges
• Ones logic for distributive fairness is easily
  distorted into whatever benefits you the most
• Equity
• Equality
• Measurable outcomes are very important to manage
  self-serving cognitions about inputs and outputs

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You get what you rewardThe Folly of Rewarding A
While Hoping for B

• Management Hopes For...
• long-term growth
• teamwork
• setting challenging stretch objectives
• commitment to total quality
• high achievement
• innovative thinking and risk taking
• candor surfacing bad news early

• But Rewards...
• quarterly earnings
• individual effort
• achieving goals making the numbers
• shipping on schedule, even with defects
• another years effort
• proven methods and not making mistakes
• reporting good news, whether its true or not
  agreeing with the boss, whether or not (s)hes
  right

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Should we be motivated by ? What does research
find about the relationship between and
happiness?

• When incomes in a country rises, happiness
  doesnt change much. 

But, when we break down the population within a
country by wealth, we see an effect
Relative income is a far better predictor of
happiness than absolute income. Which theory does
this remind you of?
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What really makes us happy?

• Within a country, the correlation between income
  and happiness is still low compared to other
  predictors, especially when you excluded the
  lower 25 of the income distribution.
• Flow total absorption in work that results in a
  temporary loss of self-awareness, lose ability to
  track time, and stop worrying
• Social Support
• Meaning (JCM task identity significance, skill
  variety)
• Cultivate forgiveness, gratitude, altruism
• Materialism is toxic for happiness

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Motives matter

• Overall, happiness is negatively correlated to
  the goal of financial success
• But happiness is positively correlated to
  Internal Motives (fulfillment of values). The
  negative correlation between External Motives
  (rewards and punishment, approval from others)
  and happiness drives the effect.
• Another found Negative Motives drives the effect
• Positive Motives meeting life necessities and
  achievement in life. ()
• Freedom of Action Motives spending money the way
  one wants (e.g., giving it in charity, blowing it
  in shopping, and engaging in activities one
  likes). (n.s.)
• Negative Motives a need for feel superior in
  social comparison or seeks to acquire power over
  others. overcome self-doubt. (-)