Farnam Street helps you make better decisions, innovate, and avoid stupidity.

With over 350,000 monthly readers and more than 87,000 subscribers to our popular weekly digest, we've become an online intellectual hub.

Age of Incentives: Paying Big Bucks For Puny Results

Parents across the country are busy paying out the little bribes they promised for good report cards. Companies are paying employees to be healthier. Will these things actually work?

Eric Felton makes some interesting points in a recent op-ed in the WSJ:

The incentive schemes may be touted as sophisticated means to produce desirable social outcomes. But as far as policy innovations go, the basic idea—if you want people to do more of X, pay them to do X—strikes me as decidedly uninspired. Especially since it so rarely works.

Companies may have bulked up the slimming schemes, but that hasn’t exactly produced a svelte workforce. It turns out that paying kids to get better grades doesn’t result in better grades, either. Or, as the astonished author of a recent Harvard study on such programs reported, “Remarkably, incentives for output did not increase achievement.”

But I suspect that for most of us the problem with the proliferating payouts is more than just a technocratic question of efficacy and cost-effectiveness. It is a philosophical objection.

Even those of us who resort on occasion to bribing our own broods know full well that the real goal is to teach our children virtues for their own sake. Are we teaching effort, enterprise, honesty, kindness, loyalty and perseverance, or are we instilling a grubby insistence on being rewarded at every turn?

David Rock, author of Your Brain at Work, offers an interesting explanation of why the carrot and stick approach (incentives) doesn’t work:

There is plenty of evidence from both clinical research and workplace observation that change efforts based on typical incentives and threats rarely succeed in the long run. For example, when people routinely come late to meetings, a manager may reprimand them. This may chasten latecomers in the short run, but it also draws their attention away from work and back to the problems that lead to lateness in the first place. Another manager might choose to reward people who show up on time with public recognition or better assignments; for those who are late, this too raises anxiety and reinforces that  neural patters associated with the habitual problem. Yet despite all the evidence that it doesn’t work, the behaviorist model is still the dominant paradigm in many organizations.