Why cash makes you stupid (sometimes)
Sorry if some people thought I was a bit sniffy about TED last week (although I can’t quite bring myself to withdraw my ‘Britain’s Got Talent for rich hippies’ jibe’). Anyway, there were two brilliant speeches on the last morning which just about made it all worth while.
The first was a powerful, insightful and extremely funny talk by orchestral conductor turned consultant, Itay Talgam. He described various forms of leadership by pinpointing the particular styles of impresario conductors. In twenty minutes I learnt more about music and about leadership than from reading learned books on the subjects.
The second was one of those talks with an idea so strong you know you will be discussing it for months. The speaker was American ideas man Dan Pink. The idea, which is the subject of Pink’s forthcoming book, is that crude incentives (like big financial bonuses or example) damage performance in complex tasks.
One of the best pieces of evidence for this claim comes from the famous candle problem. In this exercise subjects are shown a picture of a table next to a wall. On the table is a candle, a book of matches and some drawing pins in a box. The task is to attach the candle to the wall over the table, light it, but not let it drip wax on the table.
On average it takes people about ten minutes to identify the solution. This is to take the drawing pins out of the box, pin the box to the wall, then stand the candle on the box so the wax drips on to it rather than the table. This requires the subjects to make the lateral leap of seeing that the box holding the pins is not just a receptacle for another object but an object in itself.
In this test those who are offered a cash prize for completion perform less well than those who are simply asked to solve it as quickly as they can. Fascinatingly, if the test is made easier – by taking the pins out of the box so it can be seen from the start as an object in play – then those offered incentives perform better than those not.
The candle problem is only piece of a mass of evidence for Pink’s core thesis. So, his speech raises two issues: not just the fact that performance in complex tasks is harmed by crude incentives, but the question why are so few people apparently aware of this powerful finding? After all its relevance to the financial meltdown is surely obvious. Big cash incentives help bankers with the simple task of making money out of a system of financial swaps but they don’t help them with the complex task of realising the system itself is built on sand.
Let’s phrase that question another way: why is it that powerful people in important jobs don’t want to discuss research showing that being given big rewards might damage their performance. The answer, of course, is in the question.
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10 Comments on Why cash makes you stupid (sometimes)
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Ben Seymour on
Mon, 27th Jul 2009 12:19 pm
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Matt Grist on
Mon, 27th Jul 2009 2:00 pm
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Tom P on
Mon, 27th Jul 2009 2:03 pm
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Paul Hebert on
Mon, 27th Jul 2009 2:25 pm
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carl allen on
Mon, 27th Jul 2009 5:04 pm
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carl allen on
Mon, 27th Jul 2009 9:01 pm
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Simon Watson on
Tue, 28th Jul 2009 10:55 am
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Let’s diss incentives: why potential rewards are killing your creativity « Finite Attention Span on
Wed, 29th Jul 2009 1:39 pm
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Theodore Hoppe on
Mon, 7th Sep 2009 2:12 am
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Theodore Hoppe on
Mon, 7th Sep 2009 2:29 am
The potentially detrimental influence of large incentives on performance has a basis in neuroscience too. We have published a paper this week suggesting that large rewards cause basic reward pathways in the brainstem to become over-active and interfere with more high level skill processing.
http://www.fil.ion.ucl.ac.uk/~bseymour/papers/psychsci2009.pdf
Ben
The research with the candle problem is fascinating. I wonder what the neuroscientists would say? Here’s a rough try. The rational powers of the frontal cortex operate by doing one thing at a time. The computational powers of the unconscious brain on the other hand can do many things at once. If you think of solving a crossword puzzle (my favourite example) with an easy clue you get the answer straight away by using your conscious brain. But with a more difficult clue the answer pops into your head after you’ve thought more deeply about it. What is happening here is that your conscious brain directs your unconscious brain which whirs through hundreds of possible connections between words. When it alights on candidate right answers it alerts your conscious brain with a feeling of insight. Your rational brain then checks the answer.
I would conjecture that crude incentives encourage people to think in terms of simple connections between things – connections that, like the simple crossword puzzle can be solved by the rational powers of the consious brain (thinking through one thing at a time and keeping them all in mind). More complex tasks take time and a good number of connections between things to be run through, as well as novel interpretations considered. This seems much more likely to be the work of the unconscious brain.
Dan Ariely has been here too
I don’t think the “rewards” is the culprit here. I think the real problem is the misapplication of incentives. Incentives, when designed properly – do improve performance. I would tend to agree that applying incentives to an outcome that is a complex string of behaviors will force the participants into short-cutting the process and create unintended consequences. But it’s not that incentives aren’t working – they are working fine. They are designed poorly.
To suggest that the financial issues were the result of “rewards” is misleading. The crisis was a result of “massively out of balance rewards” given the goals and the consequences.
Perhaps where the individual sees himself/herself on Maslow’s hierarchy of needs accompanied by the the lemmings complex affects the balance between job performance (self-interest) and social responsibility (active citizenship).
The lemming complex is specifically mentioned because many in authority do act like lemmings, contrary to the common assumption held by themselves about having ans using power.
Should have actually said it …
Many powerful people in important jobs are testaments to the Peter principle.
When this happens, the first of Maslow’s hierarchy of needs (cash) inevitably comes into play.
Thus the conclusion is not that big rewards damage their performance but that they take what they can get before they are pushed out.
Harvard published some research on a related topic: http://ow.ly/heDT
[...] Taylor writes about why cash makes you stupid sometimes. In sum, research suggests that giving people a financial incentive to solve complex problems [...]
What supports your notion that big rewards, damages performance. For powerful people and little people alike, their job, foremost is to make money, for themselves. Its less about making money for the company the down the latter you go. The people that were pushing through no money down mortgages knew that the people buying the homes would someday not be able to pay for the home. But the incentive was set up to get people into homes not to keep them in it. This is true right up the food chain; the bankers sold the mortgages, they were divided into other securities, and so on with everyone making money. The decisions by GM executives to under fund pension by $20 billion (or the congress raiding the Social Security Fund) had more to do with “passing the buck” than it does with the candle problem (functional fixedness or preutilization)
What supports your notion that big rewards, damages performance. For powerful people and little people alike, their job, foremost, is to make money, for themselves. Its less about making money for the company the further down the ladder you go. The people that were pushing through no money down mortgages knew that the people buying the homes would someday not be able to pay for the home. But the incentive was set up to get people into homes not to keep them in it. This is true right up the food chain; the bankers sold the mortgages, they were divided into other securities, and so on with everyone making money. The decisions by GM executives to under fund pension by $20 billion (or the congress raiding the Social Security Fund) had more to do with “passing the buck” than it does with the candle problem (functional fixedness or preutilization).
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