The Carrot and the Stick

The other night I gave a talk at one of Sprout’s Spaghetti dinners. I thought I’d throw it up here for everyone’s enjoyment. I’ve edited it a little bit, because a good portion of the presentation was two experiments I did with/on the audience, which doesn’t translate, but aside from that and the inevitable rambling that happens when I speak in public, this is pretty much the talk I gave. Watch for asterisks (*), they’ll be links to pdfs of the studies I’m citing.

(If you’re in the Boston area, you should check out Sprout - they’re “a collective of community scientists” with an open shop, electronics area, and wet lab, who regularly host classes, dinners, and other fun events. Highly recommended!)

Click to read the full thing:

[I started off with by running a version of the Ultimatum Game on two members of the audience.]

Now, researchers have played this game tens of thousands of times, in different countries, with different people, for different amounts, and they always find the same pattern - the majority of people offer their partner somewhere between thirty and fifty percent of the total sum, and the majority of people, if offered less then that, choose to reject the division entirely.

It seems to get at a fundamental facet of human nature - that people believe that everything should be fair, that things should be split things evenly, and that they’ll be angry if people do otherwise. We all have that impulse, right? Wrong.

As researchers were going country to country, proving that everyone behaves in this way, they were testing, generally, university students, and even more important than that, they were testing the kind of cultures that had a university system that could therefore provide university students. A few years back, they decided to send anthropologists to fifteen small-scale societies, including foraging societies, nomadic groups, and small scale agricultural societies that hadn’t had too much contact with the Western world. And they found that while within each group, behavior was very consistent, it was not at all consistent with the way that we play the game. *

For instance, in one group, the average offer was between 15 and 25 percent of the total, much much lower than you’d see here in the U.S. Despite that, there was exactly one rejection of an offer. In another group, people were much more altruistic than you’d find here, with the majority of people giving between 60 and 70%. In still other groups, you found people rejecting offers of 50% or higher, something that virtually never happens in studies done here.

It’s a fascinating literature that I don’t have time to go into detail about, but I wanted to point out that when we talk about the psychological effect of money, we’re not talking about something hard-wired into our behavior, some sort of biological inevitability we can’t escape. There are very real differences from culture to culture, that the studies I’m going to talk about don’t account for.

So now that I’ve utterly convinced you with my detailed review of the literature that people in different cultures have different psychological understandings of what money is and its role in a community, I’d like to talk about our culture in specifically, and how we interact, psychologically, with money. I want to talk about how we treat money in our society as either a carrot or a stick, a reward or a punishment. Do what we want, and do it well, and you’ll be rewarded with an abundance of money. Don’t do what we want, or do it poorly, and you’ll face poverty - and with that, the lack of security for yourself and your children. A salary raise is a carrot. The threat of lay offs is a stick. You can even see money used directly as a stick in our legal system - either through fines, or money paid to victims in civil suits, or the use of bail.

I think many people understand that using money as a stick to control people is both corrosive to society and results in a lot of personal unhappiness. What I want to do today is talk about how using money as a reward does the same thing.

I’m going to start with an old Jewish fable*. It goes something like this:

There was a Jewish man who’d opened up a tailor’s shop in a town that harbored some fairly nasty bigots. Each day, a crowd of them would gather around his shop and jeer at him and threaten him. It was a bad situation, but the tailor was pretty clever. One day, when the bigots arrived, he gave each of them a dime to keep shouting at him. Delighted, they did so for a little while, and then, as always, got tired and moved on. The next day when they arrived, he gave them each a nickel. They were disappointed, but still pleased with the money, so they did their shouting and left. The next day when they came, he gave them a penny. Well, the bigots weren’t going to stand for that. They declared that they would not spend their time harassing him for a mere penny. So they went away, and did not harass the tailor again, and they all lived happily (if bigotedly) ever after.

A silly fable, perhaps, but like most stories and myths, it gets at a real truth about our behavior - that money distorts our thinking, and changes our motivations. Psychologists call this “motivational overcrowding”.

The idea first arose about forty years ago when a man named Richard Titmuss predicted that efforts to increase blood donations would fail. Facing a shortage of donated blood, bloodbanks hoped that paying people would increase the number of people donating blood. It did the opposite. Titmuss argued that people who had previously been giving blood out of a sense of altruism or charity now felt like they were merely doing it for the money, and so stopped giving.

A similar problem was observed at a day care center where some parents had a habit of picking their children up late. In order to get the parents to pick their kids up on time, the center leveled a five dollar penalty for arriving late. The strategy, of course, backfired. While previously parents had been trying to arrive on time so as not to inconvenience the day care workers, they now felt like they had paid for the privilege of coming late.

No one denies that people do things for reasons other than money. There are so many other reasons to do things - to help someone, to better your reputation, and perhaps most important of all, because you enjoy doing it. Psychologists divide these reasons into two groups, “external motivations” and “internal motivations”. Money and reputation are external motivations. Enjoyment is an internal motivation. Feelings of charity or altruism - they can be internal or external. If it’s an action that actively helps someone, like giving someone CPR, that’s internal motivation. If you’re doing something like running a charity race, that would be an external motivation.

It turns out that external motivations tend to crowd out internal motivations.* The child that was happy to do chores to help his parents now only takes out the trash or loads the dishwasher because it will earn him an allowance. The artist who signs on for their dream job discovers that once they’re getting paid for their work, the joy has gone out of it.

But wait, you say, I’m an artist, and I get paid for my work and still like doing it! It can’t be true that money always crowds out other motivations, can it? It turns out there are specific circumstances where money can support internal motivations, instead of detracting from them.

Money is more harmful when it is used in a controlling manor. “You won’t get your salary unless you finish all your projects by the end of the month.” “You won’t get your allowance unless you take out the trash.” Making the reward completion-contingent or performance-contingent can be interpreted as a controlling or coercive attempt to get someone to do something, as a bribe.

Contrast this with the idea of money as information. An unexpected bonus to a worker says, “I find your work of value, and wish to thank you for it.” In fact, unexpected monetary rewards have almost no impact on internal motivations. After all, if you didn’t expect to be paid for your work, you must have had some other reason to do it, and this reason will be salient in your mind.

Studies on the effects of verbal evaluation show that controlling statements such as “You should keep up the good work” or “If you continue to do well, I’ll be able to use your data” are more likely to undermine a person’s internal motivations than informational statements like, “You are doing very well” or “you are doing better than average”. Correspondingly, giving someone a money reward along with non-controlling verbal feedback allows people to frame the reward as informational instead of as an attempt to control them.

Why is control so important? People desperately want to be in control of their own lives, and a lack of control has been strongly linked to anxiety and depression. There have been many studies on whether wealth influences happiness. The answer is yes, it does - but only insofar as having money allows us to feel in control of our own lives and protects us from major life hardships, such as losing one’s home. Thus, a person making $200,000 a year will not be any happier, on average, than a person making $20,000 a year, provided they both feel as though they can manage on their income, that they’ll be able to be secure*. However, if they don’t feel secure and in control of their lives - and if they perceive a lack of money to be the source of that lack of control - then money can cause a lot of unhappiness. This is one of the ways that money is used as a stick, a punishment and a threat.

But using money as a reward, is still a way of controlling people. And as such, using money as a reward can do a lot of damage, individually and societally.

In summary - money, as we tend to use it, is about control, often when we’re not even intending it to be. And we have to be careful when we bring about that dynamic, because it crowds out so many other important impulses that we have humans have - the desire to help others and make others happy, the tendency we have to seek out experiences and actions that bring us joy and internal fulfillment. It’s not that money is inherently opposed to charity or joy, but when we use it as a means to control others, it frequently is.

We don’t have to get rid of money, necessarily, but I think we need to consciously create environments where money is not used in a controlling way. Teach your kids to help with chores because they are a part of the family and it feels good to be appreciated, not because they ought to be earning money. If you employ others, consider not making their pay explicitly and directly contingent on their work, but instead encourage them to work hard and do well out of love for their work and desire to succeed. It’s difficult, I’m sure, to carve out situations like these in the middle of a culture that is so focused on money. But it can be done, at least some times, in some places.

I think that environment has been created here tonight, with the donation boxes in the back of the room. When I donated earlier this evening, I wasn’t saying, “Continue to host these fun dinners or I will not give you any more money!” I was saying, “This has been fun, thanks for hosting, and thanks for having me speak.”