Impact of activating the concept money: A fine is a price

Let me start with the summary of the experiment by Vohs, Mead and Goode (2006) to illustrate the impact of activating the concept money.

Day care centers operate between 7:30am and 4:00pm. When a parent doesn't arrive on time to collect a kid, one of the teachers has to wait until the pick up.

Day care center decided to impose a fine on parents that arrived late. As a result, a steady increase in the number of parents coming late was observed - almost double after a month (sic!). When the fine was removed, number of parents coming late remained at the same high level.

Why was there an increase in the behavior being punished?

The introduction of the fine changed the perception of people regarding the environment in which they operate. Before introducing the fine parents may have interpreted the action of the teacher in the first period as a generous, non-market activity. They thought "I should not take advantage of it".

With the fine, a new perception has been introduced: "I can buy this service". There was no guilt or shame for parents to be late.

It needs to be underlined that even after the fine was removed, the mindset, perception didn't change. Social relationships are not easy to reestablish. As Vohs, Mead and Goode (2006) argue "once a commodity, always a commodity". As a result, long term negative effect was observed. 

The psychological consequences of money

Vohs, Mead and Goode (2009) argue that "money makes people feel self-sufficient and behave accordingly" 

In their paper the they describe 9 experiments to showcase the impact of activating the concept money.

For the experiment the used screen savers with sentences including words such as salary (vs. neutral words), or screen savers showing money (vs. fish or no screensaver).

They observed that reminders of money led to reduced requests for help and reduced helpfulness towards others. Participants reminded of money preferred to play alone, work alone, and be more distant. Activating the idea of abundance of money made people work significantly longer before asking for help (relatively to restricted amount of money). 

When the experimenter asked for help, participants reminded of money volunteered to help for 25 minutes on average, vs. 42.5 in the control group. Participants reminded of money spent ½ as much time helping a confused associate. They also donated less money to the student fund.

Activating the concept of money

Merely activating the concept of money changes personal and interpersonal behavior.

"After people are reminded of money, they show improved memory of exchange-related information, prefer exchange-based relationships, and follow equity rules".

Managerial implications

Money has been said to change people’s motivation (mainly for the better) and their behavior toward others (mainly for the worse). The results of experiments suggest that money brings about a self-sufficient orientation in which people prefer to work alone and don't ask for help.

So, dear Managers if you want your teams to work better together, stop bringing up the concept of money every time in your motivational speeches. 

Source: Vohs, Kathleen D., Nicole L. Mead, and Miranda R. Goode. "Merely activating the concept of money changes personal and interpersonal behavior." Current Directions in Psychological Science 17.3 (2008): 208-212.Vohs, Kathleen D., Nicole L. Mead, and Miranda R. Goode. "The psychological consequences of money." science 314.5802 (2006): 1154-1156.

Behavioral economics and crowdsourcing

Behavioral economics uses social, cognitive and emotional factors in understanding the economic decisions of consumers. It integrates insights from psychology with economic theory.

Social vs. market norms

Imagine you are at a dinner at your mother-in-law’s house. Try to answer the following question:

• Would paying be a good idea?

Answer to this questions seems to be pretty straightforward. It is simple, because we assume to apply social norms here. According to social norms, that are defined as derived from our social nature and our need for community, you wouldn't be required to pay for the meal.

However, from the market norms' perspective - based on costs and benefits - you would.

Working for a cause vs. working for money

In many cases people work more for a cause than for cash. Let's analyze the results from the AARP (American Association of Retired Persons) study. When lawyers were asked to offer less expensive services to needy retirees ($30 an hour) – they declined. However, when asked to offer free services – they agreed.

What does it tell us?

People act differently under social and market norms.

Do they also perform differently?

Performance under market vs. social norms

Let's now have a look at how working under social vs. market norms affects performance.

Case 1: Working for money
Students were asked to perform a boring task for 5 minutes

• Group 1 didn’t get paid
• Group 2 got 5$
• Group 3 got 50 cents

Results:

• Group 1: best performance
• Group 2: slightly worse
• Group 3: the worst 

Case 2: Working for a gift
The same experiment with gifts:

• Group 1: no gift
• Group 2: chocolate worth 5$
• Group 3: chocolate worth 50 cents

Results:

• All three groups had the same performance

Even small gifts keep us in the social exchange world – and away from market norms

Case 3: Work for an explicitly priced gift

• What about “50-cent snickers bar” and “five-dollar box of Godiva chocolates”?

Results:

• The same performance as with money: the students reacted to the explicitly priced gifts the same way they reacted to cash

Once market norms enter our considerations, the social norms are pushed out

Summary

Heyman and Ariely (2004) distinguish between monetary markets and social markets:

• Monetary markets are highly sensitive to the magnitude of compensation, whereas social markets are not
• Money market: effort depends on reciprocity, the amount of compensation directly influences individuals’ level of effort
• Social market: effort is shaped by altruism, the amount of compensation is irrelevant
• Explains a well established observation: people sometimes expend more effort for no payment (vs. low payment)
• Mixed markets closely resemble monetary market: signaling that a compensation is equivalent to money invoke market norms

Crowdsourcing and open source projects operate under social norms. As research shows merely activating the concept of money completely change the setting and heavily influence people's performance.

Next post will cover some other aspects of psychological concept of money. Stay tuned!

Source: Heyman, James, and Dan Ariely. "Effort for payment a tale of two markets."Psychological Science 15.11 (2004): 787-793.