The Misconception about Money and Motivation

For some reason our global society seems obsessed about the idea of elevating money above anything else. This is fascinating because while yes money has a lot of weight, and it’s extremely pervasive, it’s also widely misunderstood when connecting to people.

The myth

Let’s see how the myth works in our literature and how it spreads. This is just an example, but remember it’s pervasive, it’s not just this specific source:

There’s nothing like an incentive to motivate people.
And if you really want to drive them, make it a cash incentive.
Peter H. Diamandis and Jeremy Howard (2012) “The Merits Of Incentive Prizes For Driving Innovation” on Forbes

It’s incredible how this kind of bad advice still spreads, and it’s delivered without context or grounding in high profile business magazines and books.

The problem is that they are talking in a very narrow and specific case, but it’s not clarified to the reader. If we analyze their reference, the context that emerges is composed by these factors:

Contest-based prizes
High prize visibility
High prize value
Compared with traditional research funding
Mostly team based

Yes, in some extremely narrow context, economic incentives work. The problem is that it starts from these narrow criteria but then it makes two dangerous leaps of belief:

If you want to motivate people, use cash incentives
Innovative thinking is fostered by cash incentives

These two generalizations are unfortunately for the reader they absolutely false and given the high profile spotlight now more people, probably in management positions, are going to think about economic incentives more.

What’s the reality then

Unfortunately, things aren’t this simple. Humans are very complex beings, and money is a major factor that can skew our cognitive processes and biases.

To understand the wider field, we need first to identify the two core motivations:

Intrinsic motivation, the kind of push coming from an internal reason, like your own passion, a pleasure in the task itself, a higher end, a moral value, a sense of rightness.
Extrinsic motivation, the kind of push coming from an external reason, like a monetary prize, a voucher or a travel reward.

This is a really basic distinction, and we can definitely dive deeper in the topic, but it’s a useful one because it’s already able to make motivations (and incentives to elicit them) clearer.

This might be difficult to grasp, so some research and different sources might help in providing a more rounded understanding

The candle experiment

In the Candle Experiment we see quite clearly how a monetary incentive practically kills any creativity, while at the same time makes mechanical tasks faster.

First and most importantly, the group that had the highest monetary incentive was also the group that performed worse. This is extremely counterintuitive for many people: adding more money makes people perform worse? How? Don’t they have more motivation? Yes, but money as an extrinsic motivator is a tricky one because it also adds stress, and makes people compete against each other. And stress is not good for creative thinking.

Second, when the problem was presented “pre-solved”, by making clear what the pieces of the solution were either linguistically or physically, then the group with money incentives solved the problem faster. Why is the case? It’s because removing the need for creative thinking all that is remaining is execution, and that can be motivated by extrinsic factors like money.

In the words of Dan Pink

In the words of Dan Pink (or if you prefer, there’s also this wonderful RSA Animate video):

Question: How much faster did this group solve the problem?
Answer: It took them, on average, three and a half minutes longer. Three and a half minutes longer. Now this makes no sense right? I mean, I’m an American. I believe in free markets. That’s not how it’s supposed to work. Right? (Laughter) If you want people to perform better, you reward them. Right? Bonuses, commissions, their own reality show. Incentivize them. That’s how business works. But that’s not happening here. You’ve got an incentive designed to sharpen thinking and accelerate creativity, and it does just the opposite. It dulls thinking and blocks creativity.

What’s interesting about this experiment is that it’s not an aberration. This has been replicated over and over again for nearly 40 years.
Dan Pink (2009) The surprising science of motivation

And we know this… since 1945!

In the words of Berry Schwartz

One of the best quote I often use is by Barry Schwartz from the excellent talk “Our loss of wisdom” at TED:

In Switzerland, back about 15 years ago, they were trying to decide where to site nuclear waste dumps. There was going to be a national referendum. Some psychologists went around and polled citizens who were very well informed. And they said, “Would you be willing to have a nuclear waste dump in your community?” Astonishingly, 50 percent of the citizens said yes. They knew it was dangerous. They thought it would reduce their property values. But it had to go somewhere and they had responsibilities as citizens.

The psychologists asked other people a slightly different question. They said, “If we paid you six weeks’ salary every year would you be willing to have a nuclear waste dump in your community?” Two reasons. It’s my responsibility and I’m getting paid. Instead of 50 percent saying yes, 25 percent said yes. What happens is that the second this introduction of incentive gets us so that instead of asking, “What is my responsibility?” all we ask is, “What serves my interests?”

When incentives don’t work, when CEOs ignore the long-term health of their companies in pursuit of short-term gains that will lead to massive bonuses, the response is always the same. Get smarter incentives.
Barry Schwarts (2009) Our loss of wisdom

Get smarter incentives. Yes. Find the incentive you need for the task you want to accomplish. If you are trying to build a community, to foster creativity, to solve problems, DON’T use monetary incentives.

The Dan Ariely experiment

Ladies and gentlemen of the jury, some evidence: Dan Ariely, one of the great economists of our time, he and three colleagues, did a study of some MIT students. They gave these MIT students a bunch of games, games that involved creativity, and motor skills, and concentration. And the offered them, for performance, three levels of rewards: small reward, medium reward, large reward. Okay? If you do really well you get the large reward, on down. What happened? As long as the task involved only mechanical skill bonuses worked as they would be expected: the higher the pay, the better the performance. Okay? But one the task called for even rudimentary cognitive skill, a larger reward led to poorer performance.

Then they said, “Okay let’s see if there’s any cultural bias here. Lets go to Madurai, India and test this.” Standard of living is lower. In Madurai, a reward that is modest in North American standards, is more meaningful there. Same deal. A bunch of games, three levels of rewards. What happens? People offered the medium level of rewards did no better than people offered the small rewards. But this time, people offered the highest rewards, they did the worst of all. In eight of the nine tasks we examined across three experiments, higher incentives led to worse performance.
Dan Pink (2009) The surprising science of motivation

It works… in non-creative contexts

Then again, there’s an incongruence. Why then the all these management books, HR experts, and leaders say it works? We have the research, we had it for decades. One reason is that it works in the narrow, non-creative contexts. Using the same reference points from the start of the article:

Contest-based prizes — contests create competition, that is an intrinsic motivation itself because of the activity and the natural competitive system built-in in our biology.
High prize visibility — visibility is another intrinsic motivation, because it’s all about social recognition, is about showing how good we are.
High prize value — given that these kinds of task are open to the public, there are people that might dedicate a huge amount of time trying to get it. It means that you can organize better and (as the article says) you can get more funding to work on it. This simply means that it’s not anymore a prize, but a startup. ;)
Compared with traditional research funding — traditional research funding can be incredibly bad not much for the task itself, but for the kind of isolated context where it often operates. This is however a wider discussion, and has many good exceptions.
Mostly team based — if the prize is handled by someone else, so the team just does the work without having the prize in focus, that gets outside the field of view and so it doesn’t act as much as a push.

However, if we factor in the context and all, the article is not bad, containing a couple interesting passages. In particular I want to highlight this one:

In order for someone to solve a problem, they first need to believe that it is solvable. Incentive prizes help create that belief.

This is a very good point that is able to foster innovation a lot. By creating a prize, it makes the target obtainable, because it creates the social proof that someone else believes in it. Not only: that someone believes in it so much to create a prize and create a contest.

What to use to incentivize creativity then?

This then leads to the question on what to use then to incentivize creativity, something that unfortunately for the believers of the money incentives is pervasive and constitutes most of the jobs out there. Some might raise an eyebrow to this, but it’s mostly because some jobs are considered “low skilled” and “repetitive”. While yes they are likely more repetitive than others, they still benefit for creative thinking: people might find better ways to do the job, people still need to adjust for errors and the pesky reality coming in to throw complexity in highly industrialized processes. There’s always wobble room.

Luckily, even if the narrative as noted is against us, this is a well researched area and has been for decades. There are many ways to incentivize people beyond money. And for that, you might want to read these articles:

If you want a single takeaway from this article, it’s this:
money incentives destroy creativity.

Intense Minimalism