In Chapter of “Predictably Irrational”, Dan Ariely discusses the importance of social norms in determining our actions and the paradox of how we will do some things for free but not if we are paid. Economics is based on the idea that we are all self-interested and will only do something if we have something (money) to gain. Ariely shows that we are not as greedy and selfish as this depiction describes us and that we are also motivated by social norms that can often be more important than money.
Sociologists argue that we live in two worlds, one where social norms dominate and the other where market norms dominate. The social norms are the actions among friends that are not based on money. For example we might help a friend move his couch without expecting any payment (in fact it would probably be rude to require payment). There is an implicit agreement that your friend will return the favour but it does not have to be immediate or equivalent. It is socially unacceptable to keep track of favours given and received so we are happy to forget debts. In contrast to the vague, unclear and implicit dealing of the social world, the market world is the opposite. Here we only deal with people who can benefit us and make us money. All actions are based on how much money they will bring and everyone is clear on this. We try to keep these worlds separate and act differently in them. For example, I will help my sister with her homework for free but charge €20 an hour to a stranger for the same advice.
Ariely tried an experiment to test this. He got volunteers to complete a mundane of dragging a circle on a computer screen into a box, whereupon it would re-appear on another part of the screen and be repeated. He would then measure how many times they did this in five minutes. The first group would be paid 5 dollars for their efforts; the second group 50 cent and the third group wouldn’t be paid anything, but instead told they were doing him a favour. The group that was paid 5 dollars dragged on averaged 159 circles and the group that were paid 50 cent dragged 101 circles. Two things to note, firstly that this shows evidence of incentive pay, that if you pay workers more, they’ll work harder. Secondly that although the first group were paid 10 times as much they were only 50% more productive. However, the most interesting was the third group which was not paid and dragged 168 circles. This group was the most productive despite not getting paid, which shows that social norms can trump market norms.
There are plenty of examples of this. Ariely quotes the example of some lawyers who were offered $30 an hour to work for poor elderly people. The lawyers refused. Then they were asked if they would do it for free and they agreed. How could nothing be more enticing than $30? When they were offered $30 lawyers judged it based on market norms and decided that was too little money. When they were offered to do it for nothing, lawyers judged it based on social norms and considered it an act of charity, so they agreed. Why couldn’t they have taken the $30 and still considered it charity? Because the social and market norms don’t mix and we can only be in one world at a time.
Depending on which norms we adhere to also affects our behaviour. Studies show that when people are in the social norm world, they are more likely to ask for help and help others. Whereas when people are in the market norm world, they are more self-reliant and self-focused. They are less likely to help strangers or explain things to confused fellow students. They are more likely to work alone and choose individual activities over teamwork. So when we think about money and put ourselves in the market norms world, then we behave as traditional economics expects.
Businesses have tried to harness the social norms. Advertising tries to portray them as friendly neighbours who help you out and you can count on. This is a clever move because if they can tap into people’s social norms, then they can gain strong loyalty from consumers who will stick with them even when other businesses offer a better deal. But Ariely points out how businesses fail to fully understand social norms. It isn’t simply a cash cow, it comes with requirements too. For example if the business that you trust springs a hidden charge on you, you will be hurt and betrayed. You thought you were friends (an exaggeration, I know, but it’s the best analogy for a relationship based on social norms) and then they stabbed you in the back. You will be furious and may never buy there again and tell your friends not too either. Ariely warns businesses that they can’t have it both ways, either they play to social norms or market norms or it will backfire.
Business also tries social norms with its employees. Instead of simply being a place to earn a living in the daily grind, some businesses try to make the workplace an enjoyable place to be and give employees a stake in the business (the IT sector is the most obvious example). If this is genuine then employees will get a morale boost and therefore increase productivity. However, this also works both ways. If you portray the company as kind and understanding and as a friend, then it has to act like a friend. It has to be understanding over things like sick leave, benefits and work schedules. It can’t impose mass layoffs due to a downturn because although this will increase profits, it undermines the social contract. A true friend sticks by you in tough times, it doesn’t dump you as soon as you become surplus to requirements. If the business gives the impression of being solely concerned with cutting costs, then employees will become unmotivated and cynical, viewing themselves as double crossed and tools to be disposed of as soon as they stop being useful. Wal-Mart’s naming of its employees “associates” probably does more harm than good as the contrast between the title and the low pay, low respect job breeds cynicism.
Social norms greatly affect our behaviour and should not be ignored. It is for good reason that the subtitle to this chapter is “Why We Are Happy to Do Things, But Not When We Are Paid to Do Them”. Deals among friends and relatives are not motivated by pure economical considerations but by social norms. The public service is guided not by the wages (which are rarely that good) but by social norms and the knowledge that they are helping people. It would be difficult to get police officers, fire-fighters or soldiers to risk their lives simply for money, they do it to protect others. Few teachers or nurses will put in the long hours on the job if you appeal to their market norms, but they will if you appeal to their social norms. Contrary to an economics education will tell you, we are not solely motivated by money.