The Art of Thinking Clearly: Better Thinking, Better Decisions

See also Base-Rate Neglect (ch. 28); Simple Logic (ch. 63); Regression to Mean (ch. 19);
Neglect of Probability (ch. 26); Gambler’s Fallacy (ch. 29)

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56
HOW BONUSES DESTROY MOTIVATION
Motivation Crowding
A few months ago, a friend from Connecticut decided to move to New York City.
This man had a fabulous collection of antiques, such as exquisite old books and
hand-blown Murano glasses from generations ago. I knew how attached he was
to them, and how anxious he would be handing them over to a moving company,
so the last time I visited, I offered to carry the most fragile items with me when I
returned to the city. Two weeks later I got a thank-you letter. Enclosed was a fifty-
dollar bill.
For years, Switzerland has been considering where to store its radioactive
waste. The authorities considered a few different locations for the underground
repository, including the village of Wolfenschiessen in the centre of the country.
Economist Bruno Frey and his fellow researchers at the University of Zurich
travelled there and recorded people’s opinions at a community meeting.
Surprisingly, 50.8% were in favour of the proposal. Their positive response can
be attributed to several factors: national pride, common decency, social
obligation, the prospect of new jobs and so on. The team carried out the survey a
second time, but this time they mentioned a hypothetical reward of $5,000 for
each townsperson, paid for by Swiss taxpayers, if they were to accept the
proposal. What happened? Results plummeted: only 24.6% were willing to
endorse the proposal.
Another example is children’s daycare centres. Daycare workers face the same
issue the world over: parents collecting their children after closing time. The staff
have no choice but to wait. They can hardly put the last remaining children in
taxis or leave them on the kerb. To discourage parental tardiness, many nurseries
have introduced fees for lateness, but studies show that tardiness has actually
increased. Of course, they could have instituted a draconian penalty of, say, $500
for each hour – as they could have offered $1 million to each citizen of the small
Swiss village. But that’s beside the point. The point is: small – surprisingly small
– monetary incentives crowd out other types of incentives.
The three stories illustrate one thing: money does not always motivate. Indeed,

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in many cases, it does just the opposite. When my friend slipped me that fifty, he
undermined my good deed – and also tainted our friendship. The offer of
compensation for the nuclear repository was perceived as a bribe, and
cheapened the community and patriotic spirit. The nursery’s introduction of late
fees transformed its relationship with parents from interpersonal to monetary, and
essentially legitimised their lateness.
Science has a name for this phenomenon: 
motivation crowding
. When people
do something for well-meaning, non-monetary reasons – out of the goodness of
their hearts, so to speak – payments throw a wrench into the works. Financial
reward erodes any other motivations.
Suppose you run a non-profit organisation. Logically, the wages you pay are
quite modest. Nevertheless, your employees are highly motivated because they
believe they are making a difference. If you suddenly introduce a bonus system –
let’s say a small salary increase for every donation secured – 
motivation
crowding
will commence. Your team will begin to snub tasks that bring no extra
reward. Creativity, company reputation, knowledge transfer – none of this will
matter any more. Soon, all efforts will zoom in on attracting donations.
So who is safe from 
motivation crowding
? This tip should help: do you know
any private bankers, insurance agents or financial auditors who do their jobs out
of passion or who believe in a higher mission? I don’t. Financial incentives and
performance bonuses work well in industries with generally uninspiring jobs –
industries where employees aren’t proud of the products or the companies and do
the work simply because they get a pay cheque. On the other hand, if you create
a start-up, you would be wise to enlist employee enthusiasm to promote the
company’s endeavour rather than try to entice employees with juicy bonuses,
which you couldn’t pay anyway.
One final tip for those of you who have children: experience shows that young
people are not for sale. If you want your kids to do their homework, practise
musical instruments, or even mow the lawn once in a while, do not reach for your
wallet. Instead, give them a fixed amount of pocket money each week. Otherwise,
they will exploit the system and soon refuse to go to bed without recompense.