The multi-million dollar bonuses that were paid to financial service company salesmen have drawn the wrath of the American taxpayers who are bailing out these companies. In spite of this, the senior management of these enterprises insists that these huge financial incentives are the only way they can get these financial wizards to come to work and be productive.
These controversies over the necessity of incentives being paid to employees who meet their company's objectives are high profile because of the economic collapse. However, there are many more banal questions about the efficacy of "incentives" that have been confounding social scientists. Some of these include:
(1) Getting a 5-year old to eat his vegetables by offering a tasty dessert
(2) Fining parents for late pickups of children at daycare centers in Israel
(3) Stopping littering on our highways by using the threat of fines
(4) Paying people to donate blood
The example of paying people to donate blood was the basis of a study conducted by British social scientist Richard Titmuss in 1970. His book, "Gift Relationship: From Human Blood to Social Policy" has been re-released and this has motivated behavioral scientists to begin thinking about incentives in a more detailed manner. Their incentive might be a nice, tenured professorship!
So, do incentives work? In the case of Titmuss's landmark study on blood donation, they don't.
In the Titmuss study, and subsequent article in the "Harvard Business Review" by behavioral scientist Dr. Samuel Bowels, director of the behavioral program at the Santa Fe Institute, found that "offering to pay women for donating blood cuts the number willing to donate by almost half and that letting them contribute the payment to charity reverses the effect."
Thus, in the case of blood donation among women in England, offering financial incentives without a moral or public spiritedness aspect proved to be counterproductive. Bowels notes, "People want to be esteemed by others and seen as ethical and dignified. Rewarding blood donations may backfire because it suggests that the donor is less interested in being altruistic than in making a buck."
In the case of using incentives to motivate a child to eat healthy foods, a recent book by Australian economist, Joshua Gans, "Parentonomics," suggests that a reward for action is far from a "sure thing." In his book, Gans sees parenting as trying to persuade children "to do various things, from sleeping, eating, toileting, and to refrain from lying, cheating, stealing and violence." He notes that incentives work in accomplishing some of these tasks, but only sometimes.
When commenting on the effect of fining parents for being late in picking up their kids at six day care centers in Haifa, Israel, Bowels found the outcome to be counter-intuitive. When the fines started for tardy parents, the number of parents who were late picking up doubled. "The fine seemed to reduce their ethical obligation to avoid inconveniencing the teachers and led them to think of lateness as a commodity they could buy."
Whether for giving blood or picking up kids on time, incentives seem to affect what our actions signal, whether we're being self-interested or civic-minded, manipulated or trusted. Ideally, the optimal incentive policy takes into consideration both self-interest and public spiritedness.
In the case of stopping littering on highways, behavioral scientists have found that a combination of positive and negative incentives work best. "Fines or public rebukes that appeal to our moral sentiments by signaling social disapproval (as with littering) can be highly effective. But incentives go wrong when they offend or diminish our ethical sensibilities."
Offering incentives for public policy such as giving blood seems to be logical. However, if the person being offered the incentive feels that her/she is mistrusted or is greedy, the incentive can lead to an action that is completely opposite from goal.