Bonus BS

We must give those Wall Street geniuses big bonuses! That's their motivation! That's what makes them work so hard! That's what gets results!

Not so.

The relationship between behavior and incentive is taken for granted, but the real cutting edge thinkers these days are the people working between psychology and economics: the people doing research on often basic assumptions that we make about what motivates us.

Dan Ariely is one of those researchers. He was interviewed on the business radio program MARKETPLACE:

ARIELY: ... we decided to check it out. And we started by checking out the most trivial assumption: the idea that the more money that is on the line, people would perform better. We wanted to give people either a small bonus, a medium bonus or a large bonus. Now my research budget is not that big, and I wanted the big bonus to be very big, like a six-month salary. So we went to India and guess what happened? Across many tasks, the more money that was on the line, the worse people did.

Ryssdal: Say that again. More money, lower performance?

ARIELY: That's right. When we gave them a huge bonus, performance went down.

Ryssdal: Why?

To find out why, please click on this link.

Ariely's research is not anomalous, either: I've read about other research that shows that people will work harder when they're working for free than if they feel they're being underpaid, become lazy when they're overpaid, and work hardest when they feel they're being compensated fairly. This of course flies in the face of standard Bonehead Age (20th Century) economic theory, but it's a brave new world being charted out there by Ariely and his ilk.

Some more of his research is described in this video (this time on how and when we feel it's okay to cheat and lie -- the story about how the college sweatshirt makes rooms full of people instantaneously turn super-honest or super-deceitful is not to be missed!)

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