Dan Ariely's Blog, page 54

I recently learned of an interesting innovation in medical pricing coming from Sweden. This pamphlet from the healthcare authority states (translated): "If you have a respiratory problem and you don't take antibiotics for it during your first visit to the doctor, you have the right to a second visit within five days free of charge.

This approach is using the power of FREE! in an attempt to get people to reduce their use of antibiotics.  But, I wonder if this approach might be too powerful, such that it will get people who should get antibiotics, not to get any.  And, I also wonder if this approach will be particularly effective on people who have less money — which might not be ideal.

 

 

 

Over the last few years, many individuals (myself included) have been feeling tremendous anger about the level of executive compensation in the US, an anger that is particularly strong against those in the financial sector. As you can see in the chart below, there is an incredible gap between CEO compensation in the US compared to most other countries. Bankers are paying themselves exorbitant wads of cash, seen in both in their salaries and bonuses. And in their defense, the bankers in question claim that such extravagant wages are essential to properly motivate them, and that without such motivation they would just go and find a job somewhere else (they never exactly specify which jobs they will get and who will pay them more, but this is another matter).

Inordinate compensation levels aside, it is important to try and figure out more generally how payment translates into motivation and performance.  There is a general assumption that more money is more motivating and that we can improve job performance by simply paying people more either in terms of a base salary, or even better as a performance-based incentive – which are of course bonuses. But, is this an efficient way to compensate people and drive them to be the best that they can be?

A new paper* by Mike Norton and his collaborators sheds a very interesting light on the ways that organizations should use money to motivate their employees, boost morale and improve performance – benefiting both employees and their organizations. The researchers looks at a few ways that money can be spent and how that affects outcomes such as employee wellbeing, job satisfaction and actual job performance. Specifically, they examine the effect of prosocial incentives, where people spend money on others rather than themselves, and they find that there are many benefits to spending money on others (think about the inherent joy of gift-giving).

In the first experiment, the researchers gave charity vouchers worth $25 or $50 to Australian bank employees and asked them to donate the money to a charity of their choice. Compared to people who did not receive the charity vouchers, those who donated $50 (but not $25) claimed to be happier and more satisfied with their jobs.

The second experiment took the concept of prosocial incentives a step further by directly comparing people who were asked to spend money on themselves (a personal incentive) with those who were asked to purchase a gift for a teammate (a prosocial incentive). This experiment took place in two different settings — with sales and sports teams — and looked at a broader range of outcomes. It not only examined employee satisfaction, but also the other side – benefits to the organization in terms of employee performance and return on investment. While neither sales nor sports teams improved when people were given money to spend on themselves, Norton and his colleagues found vast improvements for those who engaged in prosocial spending.  While they were purchasing a gift for a teammate, they also became more interested in their teammate and were happier to help them further in multiple other ways.

If we compare these experiments, we can also see that while a gift of $25 did not make a difference when it was donated to a faceless and impersonal charity, a gift of $20 provided numerous positive outcomes when it was given in the form of helping out a teammate. Thus, it appears that we can reap the greatest benefits when we spend money on others, and even more when we spend money on close others.

Taken together, these results also suggest that our intuitions are leading us down the wrong path when we assume that we will be happiest and most motivated when we earn money to spend on ourselves. The findings from this paper can be extended to recommendations for current business practices, particularly in cases where compensation is very high. In fact, Credit Suisse has gotten a head start on adopting the idea of prosocial spending, as it has recently implemented a program requiring its employees to donate at least 2.5% of their bonuses to charity. Now, is this just a PR trick to try and diffuse some of the anger that people feel these days about bankers, or is this a real effort to increase and improve motivation? I don't know. But what is clear to me is that prosocial incentives, either in the form of charitable donations or team expenditures, can be an effective means of encouraging more positive behavior for the individual, their teammate and for society.

* Norton MI, Anik L, Aknin LB, Dunn EW & Quoidbach J (manuscript under review). Prosocial Incentives Increase Employee Satisfaction and Team Performance.

 [AG1]http://www.ft.com/cms/s/0/8b4ad9b6-1ceb-11e0-8c86-00144feab49a.html#axzz1ad3onunv

At the start of last semester, I asked my undergraduate students whether they had enough self-control to avoid using their computers during class for non-class related activities. So they promised that if they used their laptops, it would only be for course-related activities like taking notes. However, as the semester drew on, I noticed that progressively more and more students were checking facebook, surfing the web and emailing. At the same time that they were facebooking more and more, they were also cheating more and more on their weekly quizzes – and in a class of 500 students, it was hard to manage this deterioration. As my students' attention and respect continued to degrade, I became increasingly frustrated.

Finally, we got to the point in the semester where we covered my research on dishonesty and cheating. After discussing the importance of ethical standards and honor code reminders, two of my students took it upon themselves to run something of an experiment on the rest of the students. They sent an email to everyone in the class from a fabricated (but conceivably real) classmate, and included a link to a website that was supposed to contain the answers to a past year's final exam. Half the students received this email:

———- Forwarded message ———-

From: Richard Zhang ‪<[email protected]>

Date: Thu, Apr 14, 2011 at 11:02 AM

Subject: Ariely Final Exam Answers

To:

Hey guys,

Thought you might find this useful. See link below.

——————————————-

From: Ira Onal<[email protected]>

Date: Monday, March 21, 2011

To: Richard Zhang < >

Subject: Re:Hello!

Hey Richard,

Good to hear from you again. Yes, I was the TA for Ariely's class. Here's a link with the answers from the test when I was TA, and I don't think he changes the questions/answers every semester. Hope this is helpful and let me know if you have any questions:

http://dl.dropbox.com/u/26171004/irao...

Best of luck,

Ira

Ira T. Onal

Duke University Trinity School '09

[email protected] | (410) 627-0299

On Mar 11, 2011, at 5:13 PM, Richard Zhang < > wrote:

> Hey Ira,

> I hope all is going well. I'm in Ariely's class and saw your name on the syllabus – are you/were you the TA? I also heard there is an exam in the class, and was wondering if you had any guidance/tips for it. He just has a bunch of short quizzes this year, so should I use those to study from?

>Best,

Richard

–

Richard Zhang

Duke University '12

(315) 477-1603

——————————————-

The other half got the same email but also included the following message:

~ ~ ~

P.S. I don't know if this is cheating or not, but here's a section of the University's Honor Code that might be pertinent. Use your own judgment:

"Obtaining documents that grant an unfair advantage to an individual is not allowed"

~ ~ ~

Using Google Analytics, the students tracked how many people from each group visited the website. The disparaging news is that without the honor code reminder, about 69% of the class accessed the website with the answers. However, when the message included the reminder about the honor code, 41% accessed the website. As it turns out, students who were reminded of the honor code were significantly less likely to cheat. Now, 41% is still a lot, but it is much less than 69%.

The presence of the honor code, as well as the ambiguity of the moral norm, may have had a role in the students' behavior. When the question of morality becomes salient, students are forced to decide whether they consider their behavior to be cheating –  and presumably most of them decided that it is.

Moreover, a qualitative look at the email responses from students (to the ficticious student who sent them the link to the test answers) showed that while those who did not see the code were generally thankful, those given the honor code were often upset and offended.

***

The issue of cheating rose again with the final exam. I received several emails from students who were concerned about their classmates cheating, and so I decided to look into the situation with a post-exam survey. The day after the exam, I asked all the students to report (anonymously) their own cheating and the cheating they suspected of their peers.

The results showed that while the students estimated that ~30-45% of their peers had cheated on the final exam, very few of them admitted that they themselves had cheated.  Now, you might be thinking that we should take these self-reports with a grain of salt – after all, even on an anonymous survey, students will most likely underreport their own cheating. But we can also look at the grades on the exam, and because less than 1% of students got a 90% or better (and the average got 70% correct), I am relatively confident that the students' perception of cheating was much more exaggerated than the actual level (or they could just be very bad at cheating).

While it may seem like good news that fewer students cheat than they suspect, in fact such an overestimation of the real amount of cheating can become an incredibly damaging social norm.  The trouble with this kind of inflated perception is that when students think that all of their peers are cheating, they feel that it is socially acceptable to cheat and feel pressured to cheat in order to stay on top. In fact, a few students have come to my office complaining that they were penalized because they decided not to cheat — and what was amazing to me was that they truly felt that there was some injustice done to them.

The bottom line is that if the perception of cheating is that it runs rampant, what are the chances that next year's students will not adopt even more lenient moral standards and live up to the perception of cheating among their peers?

Here I discuss Chapter 5 from Upside of Irrationality, The Case for Revenge: What Makes Us Seek Justice?.

When it comes to sterilization, Denmark has had a rather turbulent history. In 1929, in the midst of rising social concerns regarding an increase in sex crimes and general "degeneracy," the Danish government passed legislation bordering on eugenics, requiring sterilization in some men and women. Between 1929 and 1967, while the legislation was active, approximately 11,000 people were sterilized – roughly half of them against their will.

Then, the policy was changed so that sterilization was still available, still free, but not involuntary. And as you might expect, the sterilization rate in Denmark dropped down dramatically – and stayed this way until 2010.

Now we come to 2010. In only a few short months, the sterilization rate increased fivefold. No, this was not a regression to the old legislation; it was a result of free choice…

What happened?  Last year, the Danish government announced that sterilization, which had been free, would cost at least 7,000 kroner (~$1,300) for men and 13,000 kroner (~$2,500) for women as of January 1st, 2011. Following the announcement, doctors performing sterilizations found that their patient load suddenly surged. People were scrambling to get sterilized while it was still free.

Now, it could be that the people who were already planning on getting sterilized at some point in the future just made their appointments a bit sooner, and conveniently saved some money.  But I can also imagine that (much like our research on free tattoos) there were many people who did not really think much about sterilization before the price change, but were so averse to giving up such a good deal that it pushed them to take the offer and undergo a fairly serious procedure.

And although we usually don't think about sterilization as an impulse purchase, it might just become one when a free deal is about to be snipped.

The recent death of Amy Winehouse should make us pause and consider the question of personal and shared responsibility.  Was she solely responsible for her tragic outcome? Or was it somewhat the fault of the people around her?  How do we want to think about the state of mind of someone who is a drug addict?  And what does that say about their ability to make good decisions and hence their responsibility?

 

I am almost sure that if I were a jury member, and I were presented with a case of a drug addict who committed a crime while in a highly emotional state of drug craving — that I would equate her state of mind to temporary insanity, and would find this to be a mitigating circumstance.

 

And if being in a state of drug craving can be considered a mitigating circumstance, shouldn't this tell us that we should not expect much personal responsibility from people who are in this state of mind?  And shouldn't the people around them (particularly the ones working with / for them) take control?  There is a very nice saying that "Friends don't let friends drink and drive" and I suspect that it is even more true of drug craving.

 

 

 

From the Huffington Post:

Would you still pay a dollar for Honest Tea if you could take it for free? On July 19, the company conducted an Honest Cities social experiment—it placed unmanned beverage kiosks in 12 American cities. There was a box for people to slip a dollar in, but there were no consequences if they did not pay.

Turns out, Americans (or at least Americans who like Honest Tea) are pretty gosh darn honest. Chicago was the most honest city, with 99 percent of people still paying a dollar. New York was the least honest city—only 86 percent coughed up the buck.

The full results:

Chicago: 99%

Boston: 97%

Seattle: 97%

Dallas: 97%

Atlanta: 96%

Philadelphia: 96%

Cincinnati: 95%

San Francisco: 93%

Miami: 92%

Washington, DC: 91%

Los Angeles: 88%

New York: 86%

Honest Tea is donating all of the money collected, nearly $5,000, to Share Our Strength, City Year and Rails-to-Trails Conservancy. The company is matching the total, bringing the total donated to $10,000.

What kinds of things might have changed this very honest behavior?

Here are some open questions, or maybe future experiments to try:

1) What if the box for paying was not transparent?  If it was opaque, then no one could see if the person in front of the box was really paying and there was no evidence that many people have paid before (based on the number of dollars that were there)

2) What if people approached the booth one by one and without being observed by anyone?

3) What if the experiment was conducted at night? What if people were slightly drunk?

4) What if there was an actor who would go by and take a bottle without paying?  Would it make the other people be less honest? (I think so)

5) Who is more likely to be dishonest, people who come as individuals, or people who come in groups?

6) When it is sunny and people are happier, are they also more honest?

What is clear is that there are lots of interesting questions here.

Here I discuss Chapter 4 from Upside of Irrationality, The Not-Invented-Here Bias: Why "My" Ideas Are Better than "Yours".

In recent years there seems to have been a surge in academic dishonesty across many high schools (a lot of it has been showing up in the last few weeks). No doubt this can be explained in part by 1) increased vigilance and reporting, 2) greater pressure on students to succeed, and 3) the communicable nature of dishonest behavior (when people see others do something, whether it's tweaking a resume or parking illegally, they're more likely to do the same). But, I also think that a fourth, and significant, cause in this worrisome trend has to do with the way we measure and reward teachers.

To think about the effects of these measurements, let's first think about corporate America, where measurement of performance has a much longer history. Recently I met with one of the CEOs I most respect, and he told me a story about when he himself messed up the incentives for his employees, by over-measurement. A few years earlier he had tried to create a specific performance evaluation matrix for each of his top employees, and he asked them to focus on optimizing that particular measure; for some it was selection of algorithms, for others it was return on investment for advertising, and so on. He also changed their compensation structure so that 10 percent of their bonus depended on their performance relative to that measure.

What he quickly found was that his top employees did not focus 10 percent of their time and efforts on maximizing that measure, they gave almost all of their attention to it. This was not such good news, because they began to do anything that would improve their performance on that measure even by a tiny bit—even if they messed up other employees in the process. Ultimately they were consumed with maximizing what they knew they would be measured on, regardless of the fact that this was only part of their overall responsibility. This kind of behavior falls in line with the phrase "you are what you measure," which is the idea that once we measure something we make it salient and motivational, and people start over-focusing on it and neglecting other aspects of their job or life.

So how does this story of mis-measurements in corporate America relate to teaching? I suspect that any teachers reading this see the parallels. The mission of teaching, and its evaluation, is incredibly intricate and complex. In addition to being able to read, write, and do some math and science, we want students to be knowledgeable, broad-minded, creative, lifelong learners, etc etc etc. On top of that, we can all readily agree that education is a long-term process that sometimes takes many years to come to fruition. With all of this complexity and difficulty of figuring out what makes good teaching, it is also incredibly difficult to accurately and comprehensively evaluate how well teachers are doing.

Now, imagine that in this very complex system we introduce a measurement of just one, relatively simple, criteria: the success of their students on standardized tests. And say, on top of that, we make this particular measurement the focal point of all evaluation and compensation. Under such conditions we should expect teachers to over-emphasize the activity that is being measured and neglect all other aspects of teaching, and we have evidence from the No Child Left Behind program that this has been the case. For example, we find that teachers teach to the test, which helps the results for that test go up but leaves other areas of education and instruction (that is, those areas not represented on the tests) to fall by the wayside.

And how is this related to dishonesty in the school system? I don't think that teachers are cheating this way (by themselves changing answers, or by allowing students to cheat) simply to increase their salaries. After all, if they were truly performing a cost-benefit analysis, they would probably choose another profession—one where the returns for cheating were much higher. But having this single measure for performance placed so saliently in front of them, and knowing it's just as important for their school and their students as it is for their own reputation and career, most likely motivates some teachers to look the other way when they have a chance to artificially improve those numbers.

So what do we do? The notion that we take something as broad as education and reduce it to a simple measurement, and then base teacher pay primarily on it, has a lot of negative consequences. And, sadly, I suspect that fudging test scores is relatively minor compared with the damage that this emphasis on tests scores has had on the educational system as a whole.

Interestingly, the outrage over teachers cheating seems to be much greater than the outrage over the damage of mis-measurement in the educational system and over the No Child Left Behind Act more generally. So maybe there is some good news in all of this: Perhaps we now have a reason to rethink our reliance on these inaccurate and distracting measurements, and stop paying teachers for their students' performance. Maybe it is time to think more carefully about how we want to educate in the first place, and stop worrying so much about tests.

—-

This post also appeared as part of a leadership roundtable on the right way to approach teacher incentives in the Washington Post.  The Washington Post will post more opinions about this topic here. 

I just posted a fun new study (should take about 5 min). If you are willing to take it, please look on on the right under "Participate" and press on the "Right Now. Take a quick anonymous survey" link. 

I will post the results in a few weeks

Thanks in advance

Dan