The Danger of Incentives

posted in: Values-Based Business | 4
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Money on a Hook

Hand Washing

We all learned from mom the importance of washing hands after a visit to the restroom, but it seems some people have forgotten mom’s words of wisdom. A 2010 study by the American Society for Microbiology found that 85% of adults washed their hands in public restrooms. An Australian medical study found that doctors washed their hands 73% of the time, when self-reporting. The same study, when relying on nurses to check on doctors’ actual hand washing practices, found it to be a paltry 9%.

In order to increase compliance with hand-washing procedures, Cedars-Sinai Medical Center in Los Angeles appointed a committee whose first order of business was to send a stern memo to doctors reminding them of the importance of hand washing. Not surprisingly, the memo had no effect in increasing compliance. The next strategy for increasing hand washing was to appoint a Hand Hygiene Safety Posse who would look for doctors in the act of hand washing and reward them with a standing ovation and a $10 Starbucks gift card. The incentive structure increased compliance to 80%, still below the mandatory 90%, but it also caused unintended consequences, as doctors would head to the floors where they had heard the Safety Posse was working to receive a free gift card. The real breakthrough came when the hospital’s epidemiologist cultured the hands of some of the top doctors in the hospital. The images “were disgusting and striking, with gobs of colonies of bacteria.” The hospital administrator set the image as the screen saver of every computer in the hospital and compliance came close to 100%.

Economics & Incentives

Economists herald these stories as beautiful examples of incentives at work, but for me they reinforce the reality that our society relies all too often on carrots and sticks and far less on the intrinsic motivations that drive our behavior. For Steven Levitt and Stephen Dubner, the best-selling authors of Freakonomics (2005), SuperFreakonomics (2009), and Think Like a Freak (2014); “Incentives are the cornerstone of modern life” and “economics is, at root, the study of incentives.” In Freakonomics, Levitt and Dubner write:

“Economists love incentives. They love to dream them up and enact them, study them and tinker with them. The typical economist believes the world has not yet invented a problem that he cannot fix if given a free hand to design the proper incentive scheme. His solution may not always be pretty – it may involve coercion or exorbitant penalties or violation of civil liberties – but the original problem, rest assured, will be fixed. An incentive is a bullet, a lever, a key: an often tiny object with astonishing power to change a situation.”

In the book, Drive: The Surprising Truth About What Motivates Us, Daniel Pink describes two types of motivation: extrinsic and intrinsic. Extrinsic motivation occurs when we preform a task in order to receive a reward or to avoid a punishment. Intrinsic motivation occurs when we preform a task simply for the enjoyment of the task.

Business & Incentives

Ever since Frederick Winslow Taylor, an American engineer, crafted his scientific management theory in the late 1800s, managers have been relying on incentives to encourage desired behavior. Unfortunately more than 130 years later, most of these incentive schemes still rely exclusively on extrinsic motivators: bonuses, raises, working conditions, job security, etc.

While extrinsic motivators can be effective in improving performance of repetitive, mundane tasks, there is lots of evidence, which shows that they can actually harm performance when a creative solution is required. This distinction between what motivates us is actually built in from birth. In a 1978 book entitled The Hidden Costs of Reward, psychologists Mark Lepper and David Greene discuss a fascinating study they conducted of preschoolers. They divided the children into three groups: expected reward, unexpected reward, and no reward. With the expected reward group, the researchers showed the children a “Good Player” ribbon and asked them if they wanted to draw in order to receive the award. With the unexpected reward group, researches asked the children if they would like to draw. If they did draw, they would receive a “Good Player” ribbon. With the final “no reward” group, researches simply monitored their propensity for drawing without the offering or receipt of any award. Two weeks later, researchers compared the frequency and amount of time that each group of children drew compared to the baseline. While there was no change within the unexpected reward and no reward groups, the children in the expected reward group were much less interested in drawing. As Mark Twain wrote in The Adventures of Tom Sawyer, “Work consists of whatever a body is obliged to do, and that Play consists of whatever a body is not obliged to do.”

The most powerful of all intrinsic motivators is purpose. Daniel Pink writes, “The most deeply motivated people—not to mention those who are most productive and satisfied— hitch their desires to a cause larger than themselves.” As a society, we should stop relying so heavily on incentive schemes that treat us little more than lab rats and focus inwardly on what truly motivates us. Focusing on intrinsic motivation allows economists and business leaders to treat us as human beings. It spurs real conversations that require us to talk about our deepest desires and motivations. Carrots and sticks may begrudgingly mold our behavior in a certain way, but true change only comes while addressing the inner person.

Photo Credit: Tax Credits

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4 Responses

  1. JT
    | Reply

    I guess the real question is can intrinsic motivation be taught or cultivated. My guess is no. A few do this,and usually do great things. The rest need this extrinsic motivation in order to push them along.

    • Joel
      | Reply

      JT, you bring up an interesting question. I believe intrinsic motivation can be cultivated but much more easily at an early age. Economists and business leaders work in an imperfect world and as such, leverage incentives to push things along. I think one of the issues is that many businesses are hiring the wrong people. They hire first for skills, instead of mission/values fit. As a result, most people within the company are not aligned and managers then must resort to incentive schemes.

  2. Nancy
    | Reply

    I totally agree with this post. Policymakers are always trying to legislate good behavior by offering the right incentives, based on these studies by economists. I heard some economists discussing how much more you would have to pay a teacher to teach in an inner-city school, or in other words, what kind of danger pay you would have to offer. But it strikes me that a teacher would need to be intrinsically motivated to commit himself or herself to teaching in that school. The additional pay would be a nice and welcomed bonus, but I doubt it alone would be sufficient to keep them at that school over the long haul if they felt their personal safety was at risk.

    • Joel
      | Reply

      Nancy, thanks for sharing your thoughts. I didn’t even realize how many incentive schemes surround us until I read Michael Sandel’s What Money Can’t Buy: The Moral Limits of Markets. Of course intrinsic motivation is the strongest, but that doesn’t change the reality that there simply may not be enough supply of intrinsically motivated people, thereby necessitating incentive schemes. Not a simple issue.

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