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Posts tagged ‘Incentives’

Misguided Incentives in Schools

A few years ago Uri Gneezy and Aldo Rustichini ran an insightful study to test the effectiveness of incentives. They approached an Israeli daycare center that was suffering from a not too unusual problem: late parents. To counter their tardiness, Gneezy and Rustichini imposed a fine – every time the parents were more than ten minutes late, they had to pay up. Before I finished reading about this study my intuition told me that the fine would be an effective deterrent. I was wrong. Not only did it not work, the fine actually caused an increase in late parents compared to control groups. The graph below says it all.

So what happened? Before they imposed the fine, the mothers were bound by a social contract, where social norms about being late influenced parents to show up on time and avoid the guilt that comes with being late. However, when Gneezy and Rustichini imposed the fine, parents became bound by a market contract; they suddenly started paying for their tardiness with money instead of guilt. Once this happened, the parents could decide for themselves if they wanted to be late or not.

The worst part, at least for the day care center (they actually ran this experiment on several centers), was that when they removed the fine the parents continued to act according to the market contract. And, as Dan Ariely explains,”social relationships are not easy to reestablish. Once the bloom is off the rose — once a social norm is trumped by a market norm — it will rarely return.”

Misguided incentives with unintentional negative consequences are nothing new (not to this blog or academia). For example, in a study done back in the 1970s, researchers put in place a reward program at an elementary school to increase students’ interest in math; for every three hours the students’ did math they earned credits they could use to get prizes. In one aspect this worked – kids spent more time on math. But after the teachers removed the prizes (they told the students’ they had to be fair to the rest of the students in the school), the students’ interest in math “plummeted to a level below where it had been during the pre-reward baseline period. In other words, it didn’t just go back to where it had been before the reward program was instituted, as an economist might have predicted – the kids were now less interested in the games than they were when the program started.” Clearly, in this aspect, it did not work. The fundamental problem with incentives like this one is that they undermine the very interest, motivation and passion that they try to garner.

This is why I am concerned when I hear about schools incentivizing their students with money. Here are three cases, which I pulled from an US Today article:

  • In suburban Atlanta, a pair of schools last week kicked off a program that will pay 8th- and 11th-grade students $8 an hour for a 15-week “Learn & Earn” after-school study program (the federal minimum wage is currently $5.85).
  • Baltimore schools chief Andres Alonso last week promised to spend more than $935,000 to give high school students as much as $110 each to improve their scores on state graduation exams.
  • In New York City, about 9,000 fourth- and seventh-graders in 60 schools are eligible to win as much as $500 for improving their scores on the city’s English and math tests, given throughout the school year.

It’s a bit too early to tell if such programs are working (if anyone has data or a news story on the subject please let me know). On the other side of the coin, there is plenty of talk about “merit pay”, programs that reward teachers for high performance. In one form or another, they’ve been implemented in Denver, Chicago, Nashville and most notably in Washington D.C. by former D.C. chancellor Michelle Rhee. Have they worked? According to the Freakonomics Blog:

In the last year… research showing that merit pay, in a variety of shapes and sizes, fails to raise student performance. In the worst of cases, such as the scandal in Atlanta, it’s contributed to flat-out cheating on the part of teachers and administrators.

Personally, I believe that education reform needs to be a top-down effort; working from the bottom-up with incentive plans like these can only do so much. But I’m really not that concerned about education reform. What keeps me up is how humans misunderstand incentives. We think that bonuses are a good idea in business, we think that cash rewards are good in schools, and we ignore the fact that many people don’t need an incentive because they truly enjoy what they do. Sometimes incentives in businesses and schools work, but sometimes they don’t. What’s important is that we keep theory and reality in line. To do this we must run experiments, collect data and empirically demonstrate what the best course is – be good scientists in other words. Psychologists have been doing this for years, now it is time for those outside of academia to do the same.

How Misguided Incentives Negatively Affect Productivity and Well-Being

Americans are not well: reported levels of subjective happiness haven’t budged in years, divorce rates are hovering around 50%, and tons of money doesn’t seem to do the trick. So what’s going on? Social scientists, economists, and politicians give us their reasons, but most are speculative and lack legitimate evidence. Thankfully, psychologists are weighing in with some data-backed answers. It’s sad news though. As psychologists publish more and more happiness studies, it is becoming clear that the biggest problem is our intuition. When it comes to well-being, our gut feelings are usually way off the mark.

This error manifests itself in a number of ways, one of which regards our intuitions of incentives. We think that monetary incentives make us more productive and better off when many times the opposite is true. Let me explain.

In the 1960s psychologist Sam Glucksberg devised a simple task. Participants were given a box of tacks, a box of matches, and a candle and told to light the candle and fix it to the wall so the wax wouldn’t hit the floor. Here was the catch: the faster participants accomplished the task, the more money they made – 5$ for those who solved it faster than 75% of people, and 20$ for those who solved it the fastest (keep in mind these are 1960 prices). With the incentives in place, most melted one side of the candle, stuck it to the wall and watched their idea helplessly melt away. A few minutes later, participants got creative and realized the solution; they placed the candle in the box and tacked the box to the wall – thinking outside of the box helps after all.

Here’s where things got interesting. Glucksberg ran the same experiment again but removed the monetary incentive. While conventional wisdom tells us that monetary incentives improve performance, Glucksberg found just the opposite: those who weren’t incentivized accomplished the task three and a half minutes faster. Why?

According to Daniel Pink, who writes about Glucksberg in his latest book Drive, “rewards, by their very nature, narrow our focus…. as [the candle] experiment shows, the reward… blinkered the wide view that might have allowed [participants] to see new uses for old objects.” This means that monetary incentives taper our creative juices – you could think of them as creative brain drains.

Complimentary results were found by Dan Ariely et al. In a series of clever experiments, Ariely divided participants into three groups, low bonus, medium bonus, and high bonus and had them try their hands in six mini games: packing quarters, Simon, recall the last three numbers, labyrinth, dart ball, and roll-up. The rules were straightforward, the better they performed on the mini games the more they were paid, but if they didn’t perform to a certain standard they were paid nothing. After running the participants Ariely found that “those who could earn the small bonus (equivalent to one day of pay) and the medium-level bonus (equivalent of two weeks’ worth of work) did not differ much from each other… [however] those who stood to earn the most demonstrated the lowest level of performance.” When the stakes are high, our ability to perform vanishes (if you don’t think this is true, go talk to Greg Norman, Jean Van de Velde, or Alex Rodriguez during October).

Pink and Ariely are suggesting two things: monetary incentives cause 1) a decrease in creativity and 2) a decrease in performance. So how is this related to well-being?

Along with strong social and romantic relationships and several other factors, the ability to engage in optimal experiences, what psychologist Mihalyi Csikszentmihalyi calls Flow, greatly contributes to well-being. What’s Flow? As Csikszentmihalyi explainsit is the climber [feeling] at one with the mountain, the clouds, the rays of the sun… the surgeon [feeling] at one with the movements of the operating team, sharing the beauty and the power of a harmonious transpersonal system,” or the chess master being “fully enthralled” in a match. Put simply, flow is being in the zone. Those who achieve it almost always describe themselves as having a strong sense of purpose and meaning, and a genuine and intrinsic love for what they do – work is not work for them in other words.

The problem is that the highly monetarily incentivized economy discourages flow. As Pink describes, “too many organizations… still operate from assumptions about human potential and individual performance that are outdated, unexamined, and rooted more in folklore than in science. They continue to pursue practices such as short-term incentive plans and pay-for-performance schemes even in the face of mounting evidence [which shows that such practices] usually don’t work and often do harm.” This is what the research by Glucksberg and Ariely illustrates; that when money is on the line, our performance and creatively decreases, we are pushed further from flow-like activities and our well-being suffers as a result.

Luckily, some companies recognize this and have taken action. Google’s “Innovation Time Off” encourages employees to spent 20% of their work time on personal projects, and once a quarter Australian software company Cannon-Brookes sets aside an entire day for its engineers to work on any software problem they want to. They’ve paid off; when employes are allowed to pursue personal goals, as opposed to goals placed on them, they “get in the zone,” produce more and report being better off (you can thank “Innovation Time Off” for your gmail account by the way). Unfortunately, the vast majority of businesses haven’t adopted similar models, and many unhappy employes could likely attest to this.

To be sure, I am not denying the value of monetary incentives, but understanding that they do not work absolutely is vital. I am also not saying that flow is a recipe for well-being, though it is an important ingredient. The take away is that monetary incentives prevent people from engaging in flow, which thereby decreases productivity, creatively, and most importantly, well-being. It is a cliché and obvious to suggest that people are better off when they are intrinsically motivated, but its seem like we continue to ignore this simple fact.

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Matt Damon Brings Back Will Hunting

By now, some of you may have seen this video, and I hope you appreciate it as much as I do. No, I am not really interested in the merits of teaching (although check this out if you are), but I am interested in the point Damon makes regarding incentives.

I think explaining human behavior with incentives is a huge oversimplification. That’s why I cringe in the introduction to Levitt and Dubner’s Freakonomics, when they claim that:

Incentives are the cornerstone of modern life. And understanding them – or, often, ferreting them out – is the key to solving just about any riddle, from violent crime to sports cheating to online dating.

As Damon says, incentives usually miss the point – people do what they do because they want to do it. Teachers teach because they love teaching and actors act because they love acting; neither have any incentives, both have passions.

Levitt and Dubner would respond by saying that Damon is wrong; the incentive that motivates passionate teachers and actors is the pleasure that comes with their work. In other words, doesn’t Damon act because he has the incentive to fulfill his love for acting?

I am not sure if either is correct. In fact, saying that Damon acts because he is passionate about acting and saying that he acts because he has the incentive to fulfill his love for acting is, I think, saying the same thing in two different ways. So I don’t know which story is better.

My real problem is with Dubner and Levitt’s “incentives are the cornerstone of modern life” assertion. First of all, I am not sure what modern life is. There are nearly 7 billion people living on Earth, some with access to everything, some with access to nothing, and most somewhere in between, and in any given day there are thousands of different cultures, societies, languages, and customs being exchanged. Such a diverse arena cannot be labeled so easily.

Second, it is ridiculous to try to sum up human behavior – an enormously complex thing – with such a simple concept as an incentive; there are no cornerstones of life (modern or otherwise), in other words. Why do people behave the way they do? I don’t know, but I am not stupid enough to claim that incentives are the “key to solving just about every riddle.”

Finally, I think it is fair to say that Damon harnesses the power of Will Hunting in his response to that reporter. Watch below… it is nearly identical?

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