Irrationally Predictably Irrational – Part 2March 26, 2009
Continuing the previous discussion, in another chapter Dan Ariely describes the distinction between “social norms” and “market norms”. When people are asked to perform a task without monetary compensation a certain part of the brain is stimulated in forming the response; however, if even a single penny is introduced the brain switches modes to stimulate an entirely different part of the brain. Not surprisingly, the end result is quite counter-intuitive. For example, if you ask a friend to help move your couch, he will probably say yes. If you offer him $2 for the effort he will feel insulted and say no. Presumably, he will calculate how much he earns per hour and determine his time is more valuable than the offer. But if he was willing to do it for free any compensation is greater than nothing, you would think if he were rational the $2 would be a good thing. Another example is a charity that asked for lawyers to help underprivileged clients for $30/hour, an offer that was declined. The same charity then asked for lawyers to help the underprivileged clients for free, an offer that was accepted (the book doesn’t say if they asked the same lawyers). The point is that people are either operating in a social or market mode, and the two never mix. Introducing money overwhelms the social norms and often causes people to act in irrational ways. Removing money from the equation magically converts everyone into charitable people willing to donate their time and skills towards a worthy cause, sounds marvelous! Here’s the problem, let’s swap the roles slightly. Imagine someone walking down the street finds a homeless man outside his regular coffee shop. He decides to drop a bunch of quarters in his cup. A few minutes later the man realizes he no longer has enough cash to buy his morning coffee and the store doesn’t accept plastic for orders below $10. What to do? Should he get some of those quarters back from the homeless man? Even if he retrieved a few coins the total number of quarters donated will still be greater than nothing. Do you think he would feel worse donating 6 quarters and retrieving 2 or not giving anything at all? Obviously, despite his net-donation, taking from the homeless man will cause him a great deal of anxiety and embarrassment, he probably won’t do it. In this case, social norms overwhelmed market norms and caused an irrational decision (judged by self-interest, which is how Dan judged rational decisions in his book). Don’t get caught up in the details of how he would retrieve the quarters, the analogy works just as well with a tip jar. Let’s extend the analogy even further and assume he gave the homeless man two granola bars only to discover he didn’t have enough cash for a sandwich, should he retrieve one of those granola bars to feed himself? What’s my point: (1) The path to irrationality is not always “good” social norms contaminated by “bad” market norms, as indicated by all the examples in his book. Next time, the man in my analogy may remember his coffee-less morning and not donate anything. The damage caused by social norms actually reduced his desire and willingness to give charitably out of fear of more personal loss. (2) People are willing to help, but not to the extent it damages their own interests, therefore you can’t organize a society around the concept of social norms. If people do not have excess something (stuff, time, whatever) they won’t be so charitable and nobody will have excess anything unless society has savings (ie. somebody, something, somewhere, must be producing for compensation that exceeds costs). No compensation, no savings, no excess, no charity. The lawyers may be willing to apportion some of their time to pro bono cases, but not all of it. (3) In the book Dan concludes gifts do not initiate the same shift from social norms to market norms. But I believe in some cases the distinction between gifts and money is irrelevant. In the absence of money, gifts can act like commodities and commodities can act like money. As with everything else it’s entirely dependant on context. In my analogy, the man had no less difficulty retrieving his granola bar. (4) Underlying Dan’s entire argument is the assumption that only self-interest in the form of acquiring more stuff is rational. Even Ayn Rand doesn’t buy that, if helping someone you love gives you joy, that’s also rational self-interest. But in the spirit of Tom Sawyer, if people can derive joy from helping move a couch, why doesn’t anybody pay their friend to help move the couch? If you derive equal pleasure from ice cream and helping your friend, what’s the difference between spending $3 on ice cream and $3 moving the couch? Wouldn’t that be even more rational than accepting payment? Obviously nobody does that, because there are several other forces at play here, not just utility. Some people may help out of duty or pride. Getting paid for something you feel a responsibility to do anyway is insulting because it infers the “payer” has a lower impression of your qualities than you have of yourself, it’s an admission the “payer” doesn’t recognize (or has no faith) in your sense of loyalty (to a cause, person, organization, whatever). Getting paid to show loyalty is like repenting without remorse, it makes no sense. Some people may help as an emotional repayment of debt for past comfort, favors or fond memories. Getting paid to repay a debt makes no sense, even if it’s a virtual debt. In my gut, it seems obvious this violates the natural laws of something. Rather than cleansing the debt, it almost increases it. In a strange parallel universe of logic, such actions are actually quite rational, and it has nothing to do with social vs. market norms. So I guess the conclusion is that should you create a sense of duty, loyalty, responsibility and debt people will work for free. But there’s another problem with this analysis, stay tuned…
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I think the reason people move couches is that they know some day their couch will need to be moved.
And as far as the coffee guy goes…if it’s his favorite cafe he should be able to get the coffee on credit. Problem solved.
I do agree that when money is added to the equation a different part of the brain lights up.
I’ve had people I know can’t afford my work ask me to build something for them. I either say I’ll do it for free (which makes me a very generous person) or I ask for something in trade. No way am I going to work for less than I’m worth.
Alice, good comment about moving the couch, in that case also it would make no sense to accept payment, and not because of any social vs. market norm.
Regarding the coffee, in the example the store doesn’t accept credit cards for orders below $10.
Is the trade of fair value, or just a token?
by credit, I mean…”pay you next time”. If he is a regular, surely that courtesy would be extended.
And as for the trade, it has been for a service. An example is I removed a door and door frame and reset it so that a large item could be removed from my friend’s flower shop. Her husband helped me make up my business cards. It turned out that he wasn’t so great with layout, so I did that part myself, but I did get a discount on the printing.
[...] the discussion, how long do these social norms last? Even Dan, I’m sure, is aware there are limits to this [...]