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The Dark Side of Incentives

Incentives consistently backfire when efforts to boost bonuses override moral considerations.

An article by Barry Schqartz in business week:

Incentives don't just fail; they often backfire. Swiss economists Bruno Frey (University of Zurich) and Felix Oberholzer-Gee (Harvard Business School) have shown that when Swiss citizens are offered a substantial cash incentive for agreeing to have a toxic waste dump in their community, their willingness to accept the facility falls by half. Uri Gneezy (U.C. San Diego's Rady School of Management) and Aldo Rustichini (University of Minnesota) observed that when Israeli day-care centers fine parents who pick up their kids late, lateness increases. And James Heyman (University of St. Thomas) and Dan Ariely (Duke's Fuqua School of Business) showed that when people offer passers-by a token payment for help lifting a couch from a van, they are less likely to lend a hand than if they are offered nothing.

What these studies show is that incentives tend to remove the moral dimension from decision-making. The day-care parents know they ought to arrive on time, but they come to view the fines as a fee for a service. Once a payoff enters the picture, the Swiss citizens and passersby ask, “What's in my best interest?” The question they ask themselves when money isn't part of the equation is quite different: “What are my responsibilities to my country and to other people?” Despite our abiding faith in incentives as a way to influence behavior in a positive way, they consistently do the reverse.

Barry Schwartz is the author of The Paradox of Choice: Why More Is Less and more recently, Practical Wisdom.