Russ Roberts

Daniel Pink on Drive, Motivation, and Incentives

EconTalk Episode with Dan Pink
Hosted by Russ Roberts
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Daniel Pink, author of Drive, talks with EconTalk host Russ Roberts about drive, motivation, compensation, and incentives. Pink discusses the implications of using monetary rewards as compensation in business and in education. Much of the conversation focuses on the research underlying the book, Drive, research from behavioral psychology that challenges traditional claims by economists on the power of monetary and other types of incentive. The last part of the conversation turns toward education and the role of incentives in motivating or demotivating students.

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0:36Intro. [Recording date: August 17, 2010.] Book argues that we have the wrong models of motivation and how we understand business and education. What has changed and what we ought to do about it? Looked at 50 years of research in behavioral psychology and in recent years a little bit in behavioral economics. What it says is that the classic set of motivators we use inside of businesses but also in schools and our families--what I call if/then motivators: if you do this, then you get that--they work pretty well for relatively simple straightforward algorithmic sort of work, work where you are turning the same screw the same way on an assembly line or stuffing envelopes or adding columns of figures in a white collar office. Evidence is pretty clear they get you to focus. Trouble is that for work that requires greater complexity, greater creativity, conceptual thinking, fair amount of evidence that says that the if/then motivators often don't work very well and can sometimes backfire. My contention is that most work in advanced economies is becoming less routine and algorithmic because that kind of work you can send overseas and automate it. As a result, kind of mismatch: using a motivational operating system, set of assumptions and protocols that's really made for 20th century work, if/then motivators, and applying it to 21st century work. Compatibility problems. Suggest we upgrade to a different approach to motivation, one far less reliant on if/then rewards, not on all rewards but a certain kind of reward, and prizes other sorts of motivators such as autonomy, mastery, and a sense of purpose. Those last three in more detail? What the research shows as I read it--don't want this to seem like it's a screed against rewards of all kinds or cry for everyone to do volunteer work and never be remunerated. Point is that research shows pretty clearly that you've got to pay people enough. If you don't pay people enough, you are not going to get motivation. But once you pay people enough--and I would argue pay people more than enough--additional units of money have relatively little impact on additional units of performance or satisfaction. What seems to matter more are these other elements. Autonomy is essentially self-direction. If you look at management--misplaced notion of management, think of it as something that emanated from nature, delivered to us from God, when in fact it's just something some guy invented in the 1850s. Gary Hamill has said this: It's a technology. It's a technology for getting compliance. That's what it's for. If you sand off the rough edges, that's what the goal of management essentially is. Don't want compliance: want engagement; and the way that people engage, people engage autonomously, through self-direction. Providing people enormous amounts of autonomy over their time at work, task, techniques, team--cool and interesting examples of companies around the world taking this very different approach to motivation through greater amounts of autonomy. Mastery: mastery is our desire to get better at stuff because we like to get better at stuff. This is why people play musical instruments on the weekend. That seems to be in some sense something of irrational behavior. Well, it's an undeniable deep source of satisfaction--musical instruments, playing chess, rock climbing. It doesn't pay people any money. Well, it depends what you are mastering. Most amateur musicians by nature of being amateurs--or playing chess on the weekend--aren't going to make a lot of money out of it. As a rational calculation of how to make money, they are better off doing something else. Curious question: biological explanation. Superficially, playing the bassoon or chess on the weekend isn't the way to sate your hunger, slate your thirst, get your genes into the next generation. Something else going on there. Would argue it's deeply innate within most people. Isn't an obvious survival benefit but presumably it may have had some survival benefit in the past that we don't know about. Plausible. Evolutionary argument more powerful than the economic argument. On the other hand--talking to someone who has a Charles Darwin doll in his office--very comfortable with these evolutionary explanations. Problem is sometimes they can be a little bit too true, a little bit too neat. Can gerrymander them to explain just about anything. People do it because they like it, get better at it. Research by Teresa Amabile, not in the book, business school professor at Harvard--shows that the single most important thing at work was the sense of making progress. Mastery, making progress inherently motivating. Finally, a sense of purpose. People tend to perform better when they do what they do in the service of something larger than themselves or at least when they see it as part of a larger whole. Some other new research by Adam Grant at Wharton, not in the book, showing that if you introduce purpose and context to a task people perform better on it, even in the absence of any economic incentives. No doubt about it. More robust building blocks for creating tasks. That said, it doesn't mean all rewards are bad; try to divide into categories: now that reward. A little more unexpected, much less contingent. Those kinds of rewards are less disruptive of the creative work. Purely contingent carrot and sticks can disrupt it.
9:16You call the chapter about it the "special circumstances." As an economist, we tend to like incentives. The book is a challenge to economic thinking. To some extent. I'm not an economist. I think it's a challenge to conventional business practices in many cases. Easy straw man to erect and knock down--won't stop me from doing it--this idea that: when I took economics, idea that at our core we are rational calculators of our economic self-interest and we make decisions based on that. It turns out--and I know you are skeptical of some of the work in behavioral economics--Human beings not uniformly rational as conventional theory would make us out to be. Agree with that. Certainly true: we care about a lot more than just money. Certainly true that the introduction of money into a non-monetary context can be jarring and counterproductive. Real issue here: part of is when economists talk about motivation they use this little phrase, which I find unhelpful to non-economists: at the margin. What we usually mean by that, when talking about motivation: we are motivated by lots of things--money, pride. Adam Smith understood it as well in The Theory of Moral Sentiments: we care about what others think of us, our reputation. We care about a lot of subtle things--autonomy, mastery, purpose. Those are extremely important. No one wants to turn a crank for a great deal of money and there's nothing on the other side of the crank. If you are desperately hungry you might, but if you cranked a crank on the wall for years and then went behind the wall and saw there was nothing, no one would say "Oh, I got the money anyway." All important. The question is: at the margin. Given a level of autonomy, mastery, and purpose, if you then add money to it, does that enhance it at the margin? That is, does a little more money make you try harder? or does it become counterproductive. The straw man part of these arguments is: if you just give people a little money, if they do their jobs and you just leave them alone. That's bad incentives. Bad management. Don't think many people run their companies that way. The question is how do you balance that delicate mix of autonomy, mastery, purpose and money. Because they all matter. Harkens back a little bit to the work of Herzberg 50 years ago: some kind of motivators are hygienic: if you don't pay people enough, you are not going to get motivation. Have to set a standard of hygiene--whether hygiene as fairness. A 1950s word. Gave example of dictator game: you and I are dividing $10 and I get to divide, you get to veto. Say, I give you $2; you say No. Lose both the two dollars; for the thrill of giving me 0 for my arrogance. Surprises some economists. Example you opened with: Wikipedia outperformed Encarta--unexpected. Economists would have said people being paid to do this would have done a better job. In some ways almost theoretically impossible. Took my first economics course in 1983 with a professor at Northwestern, Mary Alice Shulman. Terrific teacher. If I went to her and said: Bunch of people who don't know each other get together, agree to do something for free, would triumph over corporation: she would say No. Like going to a physics professor and saying I'm going to throw a ball out of a second story window and it will float into the air. Agree, and when we look at that, I think what we are seeing is the power of play. Mix of autonomy, mastery, purpose. We do lots of things for no money. What was surprising to economists or would have been in 1983 is that we wouldn't have thought of that as play. But it is play. That's why you and I blog for free. Fun. Has some implicit financial return down the road. Maybe. But tenuous. If we were purely rational calculators, we could probably come up with a way to say what is the net present value. Looks like a loser. Point about Herzberg. Phrase in book: the pay has to be market-based, decent pay relative to alternatives. A lot of really fun jobs pay less than that. Below a certain level, you get bitterness and resentment--dictator game. But once you've done that, do you not believe that effort and shirking are affected by what people are paid? Are you against merit pay? Do you think everyone should make the same at that hygienic amount? No. There have to be accountability measures. The fact that everybody should be treated well doesn't mean that everybody should be treated the same. Especially in the workplace, people are exquisitely attuned to fairness. It is more fair for someone who is a top producer, contributing a lot to the organization to make more than someone who isn't. But mistaken to say whoever comes up with a great idea will get $5000 will lead to great performance. There is a market mechanism here. Our norm of fairness is determined by what someone in a situation--my level of ability would be making at a similar place. Research that shows that high performing companies pay more than the market-clearing wage. What they are doing is paying people enough so they are not focused on the money; focused on the work. Another interpretation: the threat of losing your job is a motivator. By overpaying, you use that carrot and stick rather than an explicit contractual one. Research on loss aversion. A little of both. Silicon Valley: culture, flexibility, autonomy very high there. Was told if you have a business in Palo Alto--don't know if this is true--that has more than three employees you have to provide a shower. Give them a chance to go biking in the middle of the day. Will check.
19:41Question on the margin: Does a little money on the margin improve performance? I think the evidence is very unclear there. Depends on how the money is distributed. If you offer people--something of a sweet spot. If you do a little better by some kind of metric I'll give you a $10 bonus at the end of the month, that is obviously not going to have an effect. May even have a negative effect. But a $100,000 bonus, very motivating. Will figure out how to hit their number even if it requires taking the low road. Will even do it to hurt the company. Sales bonus very motivating--talking to someone who works 80 hours a week, would rather work 40--of course it leads to people reporting things that aren't true. Mix. Not only improves performance, but a cost. Spend money to police the system. Benefit is less. For really conceptual, creative tasks--anybody who comes up with a new idea that works in the marketplace gets $100,000--motivating in the sense it will produce activity; log a lot of hours. Not convinced they will produce anything more creative, more brilliant. That is the way our economy works. If you come up with an idea that is really successful, you get more than $100,000. Generates a lot of bad ideas, a lot of entrepreneurs who are overconfident. They don't do it out of love. They do it out of love and money. Actually think for successful entrepreneurs the balance tilts more toward love. In many cases, money operates in a slightly different way--form of feedback. Hard to prove. My view is that most successful entrepreneurs are not deeply greedy people. Bruce Yandle: I love my job, but if they didn't pay me, I wouldn't show up on Monday morning. There are some jobs we love enough, like blogging; others less pleasant. For entrepreneurs, at the margin thing. Wrote about this in The Price of Everything: most people are in it for the deep satisfactions that are not monetary, but the monetary is the signal, the score keeper. Innate drives: competitiveness to do something well, not just better but better than somebody else does. Sports. If you look at great athletes--notion of competition a little murkier--motivated to do the best they can do, to do something extraordinary. Often has the consequence of besting your opponent. Intrinsically motivating; rewards feedback. Margins: think about somebody who takes a company public and then makes a lot of money. Goes and starts another company. Marginal value for billionaires is not that great. Why do they go and start another company? Interesting. Fun. But they'd rather start a company that makes a lot of money than one that doesn't. For all kinds of reasons. Both.
25:30Underlying research in book to challenge the if/then approach. Survey of that academic history and some of the findings. Goes back to the 1940s, Harry Harlow: experiment training monkeys to solve a puzzle. Was going to reward them with raisings. They start playing with the puzzle, messing with it, figuring it out in the absence of any outside reward. Primates have biological drive, we do respond to external incentives, but maybe we also have another drive, doing things because they are inherently interesting. Controversial claim at the time. In the late 1960s, another group started taking this up, University of Rochester, experiments showed that introducing these kinds of external contingent rewards on something people enjoy doing can actually extinguish their interest in doing it. Has since refined his theory a little bit, less black and white. Behavioral economists began challenging the orthodoxy about what motivates people, more three-dimensional view of human beings. Absent in many companies, to the companies' detriment. Research first, then applications; educational part. Two types of skepticism: nature of the research and the interpretation of it. Study by Ariely in India: Rewards can be fairly large without bankrupting the budget of the researcher. Offered rewards for performance that are meaningful. $5 to jump over the table versus $5000 or $5 million. Physical tasks--throwing a ball through a hoop; and cognitive tasks. Repeating a many-digit number. Memorization; and somewhat more conceptually complicated tasks. Offered three different levels of reward: small, medium, large. Small was like a half a day's salary; large was like 5 months' salary. Meaningful amount. Found that when tasks required mechanical skill, bonuses worked as expected: the higher the pay, the better the performance. But with conceptual skill, higher reward often led to worse performance; and evidence that the most incentivized people performed the worst of all. Large difference--dramatically worse. One way to interpret that--Ariely cautious in over-interpreting it: the idea that higher rewards lead to better performance isn't uniformly true. In many cases can work in opposite fashion. Skeptical not of the results but of the interpretation. If they did it again, and found different results, they wouldn't have published it. Have to be careful. Alarm bell with academic research in general. Huge problem in research. Interesting to check the hard drives and trash bins. Seen this with friends, 20 years ago, friends in graduate school, biological sciences or chemistry; working under great master. Three students assigned to carry out same experiment: the one that came back with the result he wanted was what he went with. Affected careers. Version of confirmation bias called publication bias.
35:03But what I found disappointing: would expect rewards to be perverse and interesting would be in a case where effort mattered. Russ: mediocre golfer, but can sink a 10-foot putt. But if you put me in front of a 10-foot putt and said: If you make this I will give you a million dollars, or if you miss this, I will sever the hand of your child, I don't think I would be very good at it. Large rewards or punishment would induce fear, anxiety, make it more difficult to do the task. Trying to memorize a nine-digit number for 5 months' salary, I might do worse. Thinking about autonomy--great that workers are autonomous, but we know that autonomous workers often search the Internet. Too much, no good. Shirking is usually a problem, even in well-intentioned organizations, non-profits, fighting for a cause. Challenge to the Ariely study is it's not the right experiment. Right experiment is you've got three months to work on something and you've got to trade off working hard versus not working hard. Rewards are really important. Interpretation you would put on that: reward with stakes that high is performance-impairing because it induces anxiety. Don't have a mechanism--not like I can try harder to memorize a nine-digit number--I either have a gift at it or I don't. I only have the fear part. If you gave me a chance to do some research or find a mnemonic for it, might have a better chance. So, one is that high reward induces anxiety; the other is that the task itself is not particularly similar to the tasks people do at work, where things are often not one-shot but require time, collaboration and some degree of effort. Fair point. There is this thing--cannot remember the name of it--essentially a curve that shows if there is not enough stimulation people don't do anything, and if there is too much, people get freaked out. Sweet spot. Yerkes-Datsun? Something like that. Think that's true. A situation where someone has three months to complete a project--hiring the right people, giving them the tools they need, the freedom they need to do a great job, and paying them a healthy salary so they are focused on the job, not on the money, is a better management approach. Think there's a norm of fairness--if somebody does come up with something that ends up enriching the company, absolutely share the profits. I'm skeptical of the claim: if you do a great job over the next three months, I'll give you six months' salary is going to lead to better performance. Agree with you. Nobody likes to feel like the mouse in an experiment; or like a serf who serves the master by benevolence. Great example in the book of the ex-post reward: employee comes up with a great new product, new solution; gets small reward, lunch. Praise, compensation after the fact has the advantage of letting the bonus be adjustable, which also let's the work effort be more open ended. Would be fascinated to know how Apple treats its top engineers. Open-endedness has some kind of advantage. If people know the company treats people fairly, good performance is rewarded. Professional sports: family are Washington National fans. Professional baseball teams--people don't get paid the same amount and the amounts are known. And while it's true there are performance clauses, they are not common. The reward is basically your next contract. When baseball players are in the year before they become free agents, they actually post better numbers, once you control for other kinds of things. They try harder. Skeptical of: the coach gave them a great talk and they tried harder. They are professionals. Aren't they trying as hard as they can? Not always. Basketball--long season. Baseball: controlling for other things, the individuals do better before free agency, but their teams didn't do any better. Hard to measure. Inherent murkiness. Possible they were just going for flashier forms of success. Assumes that the next general manager didn't realize that. Next general manager is looking at the aggregate numbers; no statistical measure of unwillingness to advance a runner with a sacrifice. Manny Ramirez--won't run out of ground balls. Nature of human beings: back to the ultimatum game. People are very attuned to fairness. Executive salaries. Look at somebody like a Bob Nardelli. CEO of a large company that does really well, you get a large salary. Don't think anyone has a problem with that. The problem is if you are the CEO of a large company and you run it into the ground, you make a lot of money. Baseball players, too. People do get mad about it. Nobody gets mad about Steve Jobs making a lot of money--seems fair. Did something. Norm of fairness seems to be what prevails. Some cultural differences.
46:10Fascinating study: the Israeli daycare study. What happened in that? Group of Israeli day care centers. Rule was parents had to pick up their kids by 4 p.m. Otherwise caregiver had to stay late. To deter some parents from being late, they imposed a fine. Makes perfect sense. Posted sign that said fine for coming late, modest fine--the equivalent of $3. After the imposition of the fine, they noticed there was an increase in parents coming late. So disincentive, punishment, fine ended up doubling the incidence of lateness. Took a situation where there was no monetary role being played and introduced one. Book: money is weird. In that case, there was a Hayekian cultural norm that said it's not nice to come at 4:05 and really not nice to come at 4:20. A few people not so nice, abuse it, free ride--sometimes even enjoy it. Getting a deal. Some just make a mistake. There was a cost before--shame, embarrassment, inconvenience another person, not just any person but the one taking care of your kids. Some get pleasure from that. Change to $3--that's cheap! At the center friend takes his kids to, it's $1 a minute. If you make it $5 a minute or more--must be a substitute for shame at some amount. Might lose some customers, too. The other thing study shows is that if you take something that operates in the moral realm and put a price on it, you export it to the monetary realm--not an inherently bad thing, but it abides by a totally different set of rules. You are just buying time, like buying Cheetohs. Impose, say, $5/minute--would deter people; would have other negatives. Makes people nervous; would also incur litigation. Have to have a stopwatch. Russ, 4 kids; Dan, 3 kids. Show up at 4:01, $5/kid--but I look at my watch and say it's 3:59. Whose watch are we going to use to arbitrate this dispute? Textbook incentives or meter on restaurant table are not used for these problems. They use the raised eyebrow, disdainful look, shame. What's the perfect solution to this problem doesn't exist. In the first case, you have the sociopath, smirks knowing he is inconveniencing someone. Other case, tree falls on the parkway, never been late before. This is complicated. "A fine is a price." In this particular scenario the price wasn't high enough. Higher, might have unintended consequences. Businesses use all kinds of signals besides money. Sometimes money is the best, sometimes not. Hayekian order takes place inside companies, too. Netflix: no vacation policy. You can take as much vacation as you want, any time you want it. There are going to be some people who are free riders. There isn't abuse within that culture--emergent order and sense of values, nothing to do with money. The modern workplace, overwhelmingly by dispensing with the time clock, has made all of us autonomous. Unless you are expected for a conference call you can wander off and run errands. There is some. Also could have a tyranny there--nobody takes time off, competing. Hunch: people would look to see what the CEO or top people do.
56:43Educational applications. Wife teaches high school math. Alfie Kohn: Punished by Rewards. Summary of his world view: by rewarding people for doing things such as learning we are actually hurting them. Don't completely buy that argument. There are situations where rewards can be pretty effective. In schools in general, though, think he's largely right. Paying for grades, standardized test scores. Paper by Roland Fryer, study of four school districts using monetary rewards for academic achievement: Chicago, New York, Washington, and Dallas. Two most expensive, Chicago and New York: if you get an A you get $100, $200. These did not work, no effect. Think he misinterpreted the results. Washington and Dallas, not paying by outcomes but by behaviors: if you come to class, turn in your homework. According to him, that worked better. People didn't have the social capital to figure out how to get an A, whereas they know how to show up in school. Result in Washington, D.C., murky at best. Even before you impose the controls, there was a negative correlation between paying and doing these behaviors. Even he says in the paper: troubling. One place where there were robust results was in Dallas: paid second-graders a dollar for reading a book. At the end of the year, clear rise in reading scores. How did they check whether people actually read the book? Gave quiz at the end. Set of books that were circumscribed, but very large; computerized quiz. Kind of grotesque. Very clear, seemed to work. One, paying kids a dollar a book, most kids read about 15 books; they paid the kids three times a year, and paid them with a check. Fascinating in itself. Second grader in my house; don't think he knows what a check is. The one area where these cash rewards worked--where the kids were younger--the money was less salient. Think what the schools did was get excited, it's reading year! Ginned things up, made it fun. Which you could probably do without the money. The one area things worked was the cheapest. Could be possible that if you take a kid whose life circumstances are so dire, few advantages, not similarly situated, behind from the get-go, there might be a way that some of these external things could kick-start an interest in learning. Plausible, haven't yet seen it. Move away from money for a minute: the Alfie Kohn part--gets entangled with your work on compensation and education 2.0--he doesn't even like praise. I've taught for 30 years; and have kids in my house. A great teacher can motivate kids just because the kids want to please the teacher. But not every teacher. Some teachers, they're gonna show 'em that they are not going to learn, that they are a lousy teacher. True of adults, too. Smithian point: we want praise. What Kohn argues is that any kind of reward, monetary or non-monetary, all hurts the intrinsic motivation, replacing it by extrinsic motivation. Wait a minute: if I motivate a kid to try reading who has never read before, even if only doing it for the money at first, might they not continue reading? Agree and disagree in part. Take a nine-year old, as a parent, give my kid reward for every book he reads--creeps me out. The kid is absolutely going to read in the short term. Will read short books. What you've done is say reading is like working at a fast-food restaurant; only a chump would do it for free. Think he's right in that regard. Doesn't mean that any kind of reward from an external source is inherently dehumanizing. Philosophical point. Praise. The way you praise is important. Research of Stanford psychologist Carol Dweck: praise for effort and strategy and not for innate qualities and not necessarily for results; not necessarily not for results. What strategy did you use and how can you improve that strategy. Got a 13-year old, 11-year old, 7-year old. Something clicked in his head about math, not something you just use in school. Likes to do the puzzles: Give me a math problem. Instead of saying so smart when he gets it right, say "Tell me the strategy you used on that." I counted by tens rather than trying to multiply it. Awesome. Motivating, healthy for a kid. Research: praising innate quality says that effort doesn't matter. Effort itself is ennobling, glorious in and of itself.
1:10:38The challenge is the other direction, kid not so good at math. Destructive thing. They shouldn't plan a career in nuclear engineering; but what is gloriously rewarding for a great teacher is the ability to take average students and give them a sense of mastery. Tell them they are bad at math they are not going to get there. Might have to reward them at least with praise. Monetary carrot might be destructive. If you praise effort and strategy rather than innate ability. "Tell me what you did." That's a good strategy; why don't we try something else. Remember you were struggling with long division; now you can do it pretty well. Comes into play in homework. If they are not good at it, it's not much fun, not play. Daniel Willingham podcast: if it seems impossible the kid shuts down; if too easy kid shuts down. Not a big fan of homework--most inane, doesn't hit that sweet spot. Math teacher: gives different kids different homework. Hard work. Calls it home learning--semantic move helpful. If homework is a way to help kids practice and see connection between effort and outcome, glorious thing.
1:14:23Interesting work on the workplace: compensation. Previous books, mix of self-employment versus corporate, top-down; right-brain versus left-brain. All three books work together. Where do you see the U.S. workplace going? A lot of things going on. Nature of work, what people do and how, is becoming more human. People looking to work as a source of meaning, inherent satisfaction. Many people work long hours because they like to work. How much happier people are when they are active rather than when they are idle. Being engaged. Yearning to do something that matters and to do it in a way that is connected deeply human. Nature of organizations often incompatible with that. Some changing, but very slow. Deep human yearnings, connects the dots between books: Free Agent Nation, remains in print, sells tens of copies every year. Traveled around the United States, interviews with people who had left or been pushed out of large organizations: "Felt like I wasn't making a contribution." Have to see some outcome. Existential desire to have some impact on the world. Promise of humanistic world of business a little closer to realization than before.

COMMENTS (37 to date)
Eric Falkenstein writes:

Reminds me of Nietzsche: If you know the why, the how is infinitely bearable.

BZ writes:

This was econtalk at its best. Thanks again Dr. Roberts.

Alvin writes:

[Comment removed for supplying false email address and for rudeness. Email the webmaster@econlib.org to request restoring your comment privileges. A valid email address is required to post comments on EconTalk.--Econlib Ed.]

wbond writes:

(The same day that this is released it's linked as a reference on Mr. Pink's Wikipedia page, which reads very much like his homepage, and which is flagged for a "neutrality dispute.")

I was hoping for Tony Robbins.

Tony Robbins' Wikipedia page states that he can walk on hot coals - talk about Autonomy, Mastery, and Purpose.

BZ writes:

@wbond Hmm.. but how does Encarta treat those people in their article?

Articles in Encarta: 62,000
Avg words per Article: 200

(Based on Encarta 2005 -- last one I could find data for)

Articles in Wikipedia: 16 million
Avg words per Article: 435

wbond writes:

BZ,

That's why I went to Wikipedia.

(I was just trying to not too subtly point out the self-promotion - [and self-editing?]).

Cheers, Wbond

Kevin writes:

I was disappointed that nobody brought up tournament payoffs in the discussion of monetary incentives.

Nathan writes:

Maybe this can be summed up in a couple of points:

1. Measuring economic life by just its monetary component is like measuring an iceberg by just its above-water component

2. Management should aim to make work as much like play as possible

Tom Coss writes:

Great podcast. I'm hopeful that it is now noncontroversial that we are motivated by more than money, we never were and never shall be; as long as there is chocolate anyway.

A very interesting conversation that somehow made the last few miles of my run this morning, disappear. Thanks.

Seth writes:

I enjoyed listening to the podcast. But, I'm not sure I'm clear on what you two disagreed on and I'm not sure if Pink offered anything that went against the grain.

I really enjoyed the discussions on how research can be flawed (nature of research and interpretation). Very nice. Really makes me wonder where the feedback loop is broken to allow such studies to go through without much criticism.

Robert Kennedy writes:

One area that was not explored here is any distinction of the impact of monetary awards when those awards are public or not. That is, is there a difference in impact when the recipient knows that others will know that they got an award or not?

I might guess that when the award is public, it's impact is greater. As an entrepreneur, I might get satisfaction in the monetary success when i know that others are aware of such. As an employee, where salaries are generally not shared, i might get less satisfaction from an incremental award that my peers are not aware of.

The topic was almost broached later in the discussion when baseball player salaries, which are public, were discussed but not really explored.

keatssycamore writes:

This is one of the best podcasts you've done in while. Thank you.

I did want to mention that I think you are selling yourself short on the putting example. I tend to believe almost the opposite about the effects of a reward or punishment for successful or unsuccessful putts.

I really think it (esp a reward) would focus you up in a way that makes it more likely you would sink that putt than if you were just simply standing over a 10-footer for triple-bogey on the 9th hole in view of the clubhouse and a frosty cold adult beverage. I agree that nerves would impact performance, it's just that I think your focus and concentration would tend to be so much greater that the negative effects of nerves would be more than cancelled out. Unless we are talking severe punishment like taking one of your hands if you miss in which case I doubt the increased focus would overwhelm the nerves (not sure I could even hold the putter w/o shaking in such a scenario.

Of course, the study you guys were discussing divided the tasks to be rewarded btw physical (improved with reward) and cognitive (did not improve w/reward). I think the putt is an example more like the first physical task while, for instance, smart people with bad test anxiety are examples of a cognitive task like the second.

James writes:

Russ,

If you want to do a show on psychology, how about invite a real research psychologist instead of a fad lecture circuit salesmen type like Pink? This guy had zero empirical evidence for 90% of his statements. You might as well have asked any experience manager for their opinion on motivation. He may be right, he may be wrong, we have no way of knowing because he did not offer any new logic or evidence that I noticed.

Greg Ransom writes:

Has Pink looked at how Sea World does so well getting consistent excellent performance out their animal performers?

The focus is AlWAYS on consistent positive rewards.

The problem with so many "incentive" programs is that they look as much like negative penalties on the down side as much as they look like positive "rewards" on the up side.

Russ Roberts writes:

James,

His book is full of evidence. I just don't agree with all of it. Read the book if you want to see him make his case. You can't assess the quality of his argument just based on the podcast.

Trent Whitney writes:

A great podcast - both entertaining and thought provoking.

Building upon your discussion regarding MLB player salaries, I'm wondering what both of your reactions would be to designing player contracts with incentives tied to number of team victories. Fans clearly want their favorite teams to win. Management wants their team to win to increase ticket/TV/playoff revenue. And a lot of players also want to win (granted there are some playing primarily for the paycheck and others for personal glory/fame/statistics).

I've always thought that such an incentive design would better enable managers to get all their players on the same page - and working on areas of weakness instead of perceived strength. Sluggers would more readily bunt, if it meant helping the team win more games. Starting pitchers would more readily go to the bullpen, if it meant the team won more games. And there would be strong peer pressure to back all that up - teammates wouldn't let Manny be Manny quite so readily.

I also think you'd see bonus schedules emerge whereby Albert Pujols would earn a significantly higher bonus per team victory than would Hideki Matsui, but he would earn more per victory than Neil Walker. Over the long run, your true MVPs would rise to the top of that bonus list.

Let me say that this type of scheme is not allowed by MLB. The players like the current system where they earn bonuses for individual feats, like making the All Star team, hitting 30 home runs, playing in 150 games, etc. - why switch? And the owners wouldn't like the switch because it would be much tougher for them to budget. Some also argue that once a team got off to a bad start, the owners would have an incentive to tank the season - why part with bonus money for "meaningless wins?"

James writes:

Russ,

I see. Well, in the podcast I found your arguments and logic much more persuasive. It is obvious that a huge reward will induce people to spend more time on a task, if nothing else. They will also induce people to stay with the company. It doesn't take an experiment to show that regardless of any impairments in performance or creativity, people will readily switch jobs for higher pay.

The basic problem is that because he is a salesman type, he talks too generally. He tries to make sweeping statements about how people are motivated. That just isn't going to work, motivation is far too complicated for any one theory to hold in all cases. A scientist would carefully restrict the parameters under which his theory would hold. If you don't do that, almost any statement about motivation is very true while also being very false.

I have no interest in reading his book. After all, his last book was sub-titled "Why Right-Brainers Will Rule the Future", which puts him firmly in the "pop psychology" field.

Christian writes:

Economics is to Neuroscience as Alchemy is to Chemistry

Ward writes:

The day care discussions struck me as very nieve. You've got to have a system for overtime in a setting like that - traffic jams, work related emergencies and genuine emergencies happen so to not price that overtime is foolish and then to price it too low is even more foolish but that's why we have markets so you can discover those things. Behavioral economics is fascinating but its very easy to attribute more to it than it deserves.

Shawn Reed writes:

I'm sure, as Professor Roberts mentioned, that the daycare example pops up several places, b/c it's just so darn interesting. If one wants to read a bit about it and a take on some of the econ behind it, it's included in Freakonomics (at the latest kindle edition, not sure about the earlier one). Dubner and Levitt's points were pretty similar, regarding shame; it's included in a chapter on incentives, and they do a fair job of discussing non-monetary incentives.

chitown_nick writes:

One thing I thought was interesting was the notion that extremely large cash incentives were correlated to dramatically lower performance. I tried finding information on the study, but could find only summaries. Does this represent lower performance on average, or lower performance by an individual?

If it's the former, I wonder if people are "unmotivated" because they believe (sometimes rightfully so) that they will not succeed at a task and are more afraid of failure than motivated by the potential prize. If the prize grows, they are more likely to overcome that barrier, to the detriment of average performance.

If, however, the same individuals perform worse under strong motivation, that would be a much more complex phenomenon.

Scott M writes:

Just wanted to share an anecdote:

When I was in fourth or fifth grade, I did poorly on book report assignments. My problem? I wasn't actually reading the books. My mom paid me $2 to read a 70 page juvenile biography on the composer Edvard Grieg ($2 was equivalent to my occasional allowance). The book wasn't fun to read, but I did complete it and I received the money. Shortly after that, I started reading more and more until, finally, I became "the reader" in the family, consuming hundreds of pages a month.

In my case, the monetary reward overcame my lack of motivation. It wasn't that I had dyslexia or some other cognitive impairments that prevented me from reading; I was just being lazy. If I had had such an impairment, I'm not sure the reward would have worked.

I'm grateful for my mom using that monetary incentive to jump-start my interest in reading. Few things have given me as much pleasure in life as settling down behind a good book. It's true I may have found an interest in reading on my own, but I doubt it would have happened as quickly.

Martin Dennis writes:

Thanks for the interesting podcast. I've been listening for a couple of years now: it's become one of my "can't-miss-this-week-even-if-I'm-too-busy" podcasts.

I just wanted to note that the "inverted-U" relationship between arousal and performance--part of the discussion of the Ariely study--is indeed commonly known as the Yerkes-Dodson Law: arousal levels that are either too low or too high are seen to impair performance. Interestingly, in the usual presentation of Yerkes-Dodson the level of arousal for optimal performance varies with task difficulty. Performance on difficult (e.g. unpracticed) tasks is best at relatively low levels of arousal, while performance on easy (e.g. well-practiced) tasks is best at relatively high levels. (At least, that's how it's presented in the textbooks, which may not accurately reflect the empirical findings.) So, following Russ's line of reasoning, being aroused by the possibility of a large reward may boost performance if the individual is allowed to be well-prepared for the task.

By the way, I agree with James who commented earlier that it may be more informative to interview an actual research psychologist about these topics. Might I suggest Paul Bloom, author of "How Pleasure Works," for a follow-up to this podcast?

David B. Collum writes:

Russ:

Nice podcast. I took your advice and have been working forward. I thought the podcasts would feel too dated but they hold up well.

Some thoughts:

(1) To those who criticize rigor (right or wrong), I would simply recommend enjoying two smart guys pondering interesting topics. If there were not rigor at all--I have no idea--I would simply call it philosophy and still enjoy it.


(2) I have long suspected that middle age sends you into some odd form of crisis. Some guys get trophy girlfriends and sports cars, others chase less costly pursuits. If, for example, you look at the demographics of market chatboards, they are completely dominated by boomers. What are they looking for? My suspicion is that it is less about investing and money and more about a need to master something altogether new and possibly something seemingly more worldly. Us boomers on these boards become what Michael Lewis might call garage-band economists.

(3) As to sense of progress, my wife misses this one totally. She asks me for help on some marginally interesting task and then interrupts me. She has no concept that the only way I can tolerate this task is to get a sense of progress, which is truncated by the interruptions.

(4) It has been suggested that the marginal benefits of more money essentially saturate. This might be described by the function f(x) = ax/(1+bx) in which f(x) is happiness and x is your compensation. Once you reach a point of safety--once you reach the point in which a broken fuel pump on your care is a non-event--additional money isn't that helpful. It is, however, a way of keeping score. I invest for retirement but derive great satisfaction watching the money accrue. This is a subset of the larger idea of making progress. Of course, living paycheck to paycheck leaves little sense of progress.

(5) Admittedly rambling, even independent of principles of free markets and liberty, taxing away inheritance would be a total disaster. At this sensitive period in one's life, the importance of being able to declare victory in death by leaving the next generation better off may be an important salve.

(6) Daniel was spot on about the notion that the real captains of industry are still respected because they earned it fair and square whereas the Dick Fuld's of the world should stay away from lamp posts.

(7) Just a strange anecdote on incentive: A pharmaceutical company has nine levels of salary. To get to the top level on the research level requires relentless success and promotions. As part of budget cuts to save money, they just fired almost all of those guys. I guess it's akin to becoming a Roman emperor during a period of high turnover.

(8) For those who like the stuff being discussed, the Gladwell trilogy is a very easy, entertaining read.

Kristoff writes:

Excellent podcast, I really enjoy hearing about research into human behaviour and motivation.

James - I disagree with your assertion that:


It doesn't take an experiment to show that regardless of any impairments in performance or creativity, people will readily switch jobs for higher pay.

I know many people who have switched away from high paying employment to lower paying jobs for a range of reasons, including their creative freedom and overall fulfillment.

Also wanted to point anyone interested to an LSE lecture that covered some of the same themes and examples. In the lecture Clay Shirky (who seems to have been on Econtalk before) talked about what he calls 'cognitive surplus'. Its basically about the productive stuff that people do in their spare time, outside of a job or other money-making movivation, and how it may be used to make the world a better place. The lecture can be found at http://www2.lse.ac.uk/publicEvents/events/2010/20100628t1830vSZT.aspx

Michael Nelson writes:

Click here for a clip from NPR's "Wait, Wait, Don't Tell Me" confirming Russ' skepticism about motivational speeches from coaches.

NFL coach Pete Carroll said:

"No, here's the point. What you do - it's about the preparation during the week that gets you ready to play. And when you have guys that have put in their work, they've done their studying, the idea is to get them to feel that they don't have to worry about what's going to happen, they've been so well-prepared So when it gets to game time, you're just trying to keep their emotions going so that when they get out on the field, they're at their very best.

"It really isn't the last words you say, it's more the release that you give them to freely play because they're so prepared, they're so jacked up. These guys love to play. They don't need to be kicked in the butt in the way you're talking about, with a speech. They need to be prepared really well so that they're so excited to play, they go out there and play the game like they're capable. That's what's really important.

"The worst thing you can do is tell somebody that they've got to play the best game of their life - and you don't know how to ever control that. We want our guys to play like they're capable of playing longer than the other guys, and outlast our opponents. And that's going to win a lot of games for you because you're not beating yourself when you do that."

chitown_nick writes:

Another anecdote -

Thinking over the daycare example and how social stigma was more of a motivator than a small fine, I came across another example of that in listening to the audio book of Bill Bryson's Notes from a Small Island. In one segment he comments on the peculiarity of the British when he sees a farmer, who owns fields on both side of a stone wall. When the stone wall has fallen down, the farmer is immediately out in the field, repairing the wall. There is no immediate purpose to this - it's not a real barrier, there is no penalty for not doing it, nothing of the like. When he questions the farmer why he is fixing the wall, he replies "Because it fell down," like it's a silly question. In effect, the British landscape is gorgeous with meticulously maintained stone walls, centuries old, because people fix things when they break, as a matter of course.

I'd be interested if anyone has done a study comparing cultural norms in different areas of the country or the world, to see what might affect this type of pride in the things one controls and would love a podcast discussion on that topic as well.

Eric writes:

Hi, I'm a Netflix employee. I thought I might be able to answer the hunches about vacation time here. First, some background.

The origin of the vacation policy stems from how salaried employment really works, and extending it: hours worked in a day aren't tracked, so why should days in a year? Employees know what their roles are, what they need to get done to be effective, and it doesn't matter when (or where) they do it.

To that point, one of my coworkers spent the last month in the south of France. He was still responsive to emails (minus the time zone change), and his work was taken care of, so it wasn't a problem. That's not the first occurrence I've seen where someone decided to take a whole month off.

Actually, I don't think most people know the top people's vacation schedule. We do know what it is for our coworkers though, so we can plan around their vacations. Taking a look at the vacation calendars for my team and a couple others, it looks like most people take more time off than their managers. So there doesn't appear to be any attempt to be in the office as much as the boss.

Very few people aren't taking any vacation, so there's not really anyone trying to impress by not taking vacation. It's much more impressive to get something significant accomplished, so who cares whether you were in the office, as long as it got done.

There are some other interesting practices that seem to be fairly unique to Netflix. For example, they don't pay bonuses. I was working at TiVo before Netflix, and my base salary at Netflix is much higher, but at TiVo I had the chance to get a bonus twice a year. The philosophy behind it is that if you hire the best employees, then they'll always deserve their entire bonus, and if they're not the best employees, they shouldn't be working here.

John Berg writes:

Mike Maccoby wrote the book The Gamesman to make the point that some people reach a state where the money turns into mere tokens for showing who among the CEOs is better.

John Berg

Ray writes:

I enjoy the podcasts with Pink, but he gives the impression of being relatively new at restraining himself.

Like the new guy in the big meeting at work who doesn't know when to be cool, and when to lean forward, and make a strong point.

Russ showed up for an intelligent discussion, and Daniel showed up for an argument. He had the presence of mind to dial it back, and be professional, but was clumsy in the effort.

That's relevant to his views because such an attitude belies a rashness or emotional element to his thinking. He's a smart guy, but tends to get on good ideas, and then take them too far in one direction or another.

FhnuZoag writes:

If we establish that small, proportionately insignificant fines are counterproductive, what does that mean with respect to government regulation of corporate misdeeds? Because such small fines are basically the normal ways by which governments attempt to regulate businesses?

Should we replace fines with a method that aims to capitalise on shame and humiliation, rather than monetary assault? Or are corporations sufficient sociopathic (figuratively speaking) that the non-monetary punishment is meaningless?

TGGP writes:

Robin Hanson says creativity is overrated. And school is about compliance.

The notion that management was invented around 1850 strikes me as bizarre. I think the industrial revolution with workers who were not self-directed began long before then. Adam Smith noted the contrast of industrial workers with artisans. And slaves of course had overseers.

Ariel Rubinstein says the Israeli daycare study is bogus.

The problem of enforcement costs is extensively explored in "Order Without Law". It also discusses resistance to introduction of monetary exchange and the legal system in a system relying on social censure.

John Ratelle writes:

Russ,

I have been working in the area of incentives and trying to improve lifestyle decisions. Specifically rewards to employees to change biometric measurements, Blood Pressure, BMI, LDL and Tobacco use. We have mixed results on an individual basis providing financial incentives to improve lifestyle, but in the aggregrate it has been succesful. The question always arises is what other motivators are there to impact behavior other than money? Peer Pressure? Does Behavioral economics point to more effective strategies?

Bob writes:

Discussion on praise for kids reminded me of book "Nuture Shock" by Po Bronson. Good read about praising concrete techniques/achievements instead of general "good job" praise.

Wayne Marsh writes:

Regarding paying kids to read books: In the movie "Matilda," Danny Devito's character says to his daughter Matilda, "Why would you want to read a book when you have a TV right here?"

Making book-reading a paying proposition, no matter how nominal, might modify or eliminate negative influences like that, which some kids receive at home.

jeff hamilton writes:

Why did you state that the school system that wrote checks was “weird”? Did you not consider that a check is typically deposited into a bank account and thus a portion might just be saved? Perhaps a check is a greater reward than cash, a bit like a reward certificate, something you can consider for a period of time rather than just another green piece of paper, it is a bit ill considered to suggest the check is “weird”; in addition, it is not rare that a second grade child has a checking account in my son’s school system.

Pink states that; “I think most homework is inane”...this is based on what research?
The focus of the interview was on research based hypothesis, so why interject opinions so forcefully. My son’s homework is directly related to the subject in which he is expected to demonstrate competence. The homework my wife has assigned to her students over the past twenty years has been directly related to the science with which they are expected to understand.

As to the teacher who provides individualized homework for students, consider the practicality of this...25 students per class and 5 classes…

Chas writes:

@ Eric, thanks for the Netflix explanation. Very insightful.

It seems to me that the big problem in studying incentives and implementing them in management is that we are each motivated by a variety of different factors, and how much we are motivated by each factor differs from person to person. I learned this the hard way with my kids. I signed a contract with my oldest boy which tied his grades to our budget for purchasing him a car. It worked great. He got straight A's and we bought him a nice car. I naturally assumed this would also work for my daughter (just 20 months younger). It failed miserably. There did not seem to be any difference in her behavior -- she barely graduated from high school -- not because she's not smart (she's very bright) but because she just decided to quit going with about a month left.

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