Thursday, January 21, 2010

Widget Boosters

"Carrots..may work better if they can somehow be made to look like sticks."

"Carrots dressed as sticks," The Economist, January 16th, 2010.

Behavioral economics offers brainteasing insights -- like loss aversion. "People are contrary creatures." We are motivated more by the possibility of losing something than from potential gain. Some new research about workers in a Chinese electronics factory shows that a provisional bonus for increased production motivates higher output than the potential of receiving a bonus for increased production. Essentially, the boss says: "Here's your bonus, now go earn it, and by the way, don't lose it." Of course, we think the bonus is already ours and thus speed up widget production. And these effects, at least in this case, persist over time.

On the other hand, I wonder if organizations would prefer pay for performance rather than risk the consequences and fallout from actually taking something away that wasn't earned. Moreover, firms might have to keep raising the bar-- that is, the bonus -- if they want to keep increasing production. The danger, of course, is that the provisional bonus becomes a regularized expectation about compensation. And then what?

No comments: