CEFRO-Consultant

Let’s begin with the most obvious incentive: money. There is probably no quadrant of modern life in which financial incentives do not hold serious sway. Money even shapes the way we are shaped. (…) And let’s consider the most common realm in which financial incentives dictate our behavior: employment. Pretend for a moment (if necessary) that you absolutely love your job- the job itself, your colleagues, the free snacks in the break room. How long would you keep showing up if your boss suddenly cut your salary to $1? No matter how much fun you have at work –and no matter how often you hear a professional athlete swear he’d play for free –few people are willing to work very hard without getting paid. No CEO in the world, therefore, is so delusional as to expect his employees to show up every day and work hard for no money. (…)

The problem is that while some incentives are obvious, many aren’t. And simply asking people what they want or need doesn’t necessarily work. Let’s face it: human beings aren’t the most candid animals on the planet. We’ll often say one thing and do another –or, more precisely, we’ll say what we think other people want to hear and then, in private, do what we want. In economics, these are known as declared preferences and revealed preferences, and there is often a hefty gap between the two. When trying to figure what kind of incentive will work in a given situation, it is crucial to keep your eye on this gap. (Thus the old saying: Don’t listen to what people say; watch what they do) Furthermore, it’s often the case when you most desperately want to know someone else’s incentives –in a negotiation, for instance-your incentives and theirs are at odds.

How can you determine someone’s true incentives? Experiments can help. The psychologist Robert Cialdini, an éminence grise in the study of social influence, has proved this again and again. In one case, he and some fellow researchers wanted to learn about the incentives that would encourage people to use less electricity at home. They began with a phone survey. The researchers called a diverse set of California residents and asked them: How important are the following factors in your decision to conserve energy?

1.       It saves money.

2.       It protects the environment.

3.       It benefits society.

4.       A lot of people are trying to do it.

Let’s see what we have: a financial incentive (no.1), a moral incentive (no.2), a social incentive (no.3), and what might be called a herd-mentality incentive (no.4). How would you guess the Californians ranked the reasons for saving energy? Here are the answers, from most important to least:

1.       It protects environment.

2.       It benefits society.

3.       It saves money.

4.       A lot of people are trying to do it.

That seems about right, doesn’t it? Since conservation is largely seen as a moral and social issue, the moral and social incentives are the most important. Next came the financial incentive and, in dead last, the herd mentality. This too seems sensible: who would admit to do anything –especially an act as important as conservation- just because everyone else is doing it?

The phone survey told Cialdini and his colleagues what people said about conservation. But did their actions match their words? To find out, the researchers followed up with a field experiment. Going house to house in one California neighborhood, they hung on each doorknob a placard encouraging residents to save energy in the warm months by using a fan rather than air-conditioning.

But, this being an experiment, the placards were not identical. There were five versions. One had a generic “Energy Conservation” headline, while the others bore headlines that matched up to the four incentives –moral, social, financial, and herd-mentality –from the phone survey:

1.       Protect the environment by conserving energy

2.       Do your part to conserve energy for future generations

3.       Save money by conserving energy

4.       Join your neighbors in conserving energy

The explanatory text on each placard was also different. The “Protect the Environment” placard, for instance, said that “you can prevent the release of up to 262lbs. of greenhouse gases per month. The “Join Your Neighbors” version merely said that 77 percent of local residents “often use fans instead of air-conditioning.”

The researchers, having randomly distributed the different placards, were now able to measure the actual energy use in each home to see which of the placards made the most difference. If the phone survey was to be believed, the “Protect the Environment” and “Do Your Part for Future Generations” placards would work best, while “Join Your Neighbors” sign would fail. Is that what happened?

Not even close. The clear winner of the four was “Join Your Neighbors”. That’s right: the herd-mentality incentive beat out the moral, social, and financial incentives. Does this surprise you? If so, maybe it shouldn’t. Look around the world and you’ll find overwhelming evidence of the herd mentality at work. It influences virtually every aspect of our behavior –what we buy, where we eat, how we vote.

You may not like this idea; none of us wants to admit that we are pack animals. But in a complicated world, running with the herd can make sense. Who has the time to think through every decision and all the facts behind it? If everybody around you thinks that conserving energy is a good idea- well, maybe it is. So if you are the person designing an incentive scheme, you can use this knowledge to herd people into doing the right thing –even if they’re doing it for the wrong reasons.

 With any problem, it’s important to figure out which incentives will actually work, not just what your moral compass tells you should work. The key is to think less about the ideal behavior of imaginary people and more about the actual behavior of real people. Those real people are much more unpredictable.