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Pop!Tech ’09: Mo’ Money, Mo’ Problems

One of the basic tenets of business (and especially Wall Street) is that the more you pay people, the better they do at their work. The behavioral...


One of the basic tenets of business (and especially Wall Street) is that the more you pay people, the better they do at their work. The behavioral economist Dan Ariely, who just presented at Pop!Tech, has done research that shows that's not entirely true.In Ariely's experiments, he came up with a variety of quick cognitive tasks and promised people money for doing well at them. One group was promised a day's wages for doing well at these tasks. Another group was offered more. A third group was offered a full five months' salary.In the graphic here, the three groups are on the x-axis and their scores are on the y-axis. What Ariely found was that as the promised payout got higher, their performance actually got worse. His explanation for this strange result is that money is a motivator for people, but it's also a stressor. When stakes are really high, people get more anxious about doing well, and that anxiety actually hurts their performance. In the case of Wall Stree bonuses, the loss aversion effect kicks in, and people get extra stressed because they've already banked on using that bonus money to pay for their apartment or schools or vacation homes.Could we get better results from people-and particularly from the Wall Street types-by lowering the stakes slightly?
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