Name: Mixed Signals
Rating: 4.4 (243 reviews)
Author: Uri Gneezy

What’s in it for me? Make better decisions by understanding how incentives shape our behavior

Imagine this: $100 today or $110 tomorrow. What's your choice?

Most people say they’ll wait a day for the extra $10 – but research shows that they usually do the opposite.

Too often our behavior goes against our best intentions, even when the incentives – like an additional 10 percent for just a bit of patience – are solid. But why?

The field of behavioral economics sheds a lot of light on irrational human behavior, bridging the gap between actual actions and logical decisions. It dives into the psychology, environment, culture, and circumstance behind our choices. The aim? To create better decision-making strategies.

In this Blink to Mixed Signals, you’ll discover why incentives often fail, despite seeming foolproof. You’ll learn about the impact of social norms and self-perception on decisions, and explore common workplace conflicts. You can harness this knowledge to navigate behavior and problem-solving.

So stay tuned as we break down the basics of mixed signals – making sense of the irrational.

Money isn’t a universal motivator

Incentives play a major role in how we make choices – but our responses to incentives aren’t simple, especially when they come into contact with biases.

Consider the $100 offer again and how people don’t go for the additional $10. What’s happening here is called the “present bias” in which immediate satisfaction usually trumps a delayed gain, especially if that gain is relatively small. The incentive – an extra $10 – just isn’t strong enough when held up against having to wait another day.

There are many more biases and emotions that affect our perception of money as incentives, too. While money can be a powerful motivator, it doesn't always lead to better performance or outcomes. The evidence of this can be seen in professional sports where teams reward players with contracts that include big bonuses tied to what that player does individually. Consider an example from the NFL in which Baltimore Ravens player Terrell Suggs had a contract rewarding him with $5.5 million once he reached a goal of sacks for the year. While Suggs reached his goal, the team overall didn’t finish the season well. While that’s not necessarily his fault, his individual incentive didn’t seem to help the team’s outcome.

Sometimes, using money as an incentive backfires if you set the amount too low. Consider the case of daycares charging parents whenever they’re late picking up their kids. Gneezy began to study this after his own experience. He describes one instance of being late and the embarrassment he felt. The daycare wasn’t yet charging fees, and he felt bad enough already to make sure not to repeat the offense. When the daycare started a fee system, it announced the fee would be about $3 for anyone arriving late by ten or more minutes. Now with a relatively low price tied to being late, parents got the message that it’s not that big a deal – a much smaller deal than they’d originally thought. The fine was so low that the number of late pickups actually increased.

Gneezy also researched other daycares around the world and found that fine structures can work, but the fine must cause a bigger financial hit. Some daycares charge parents $5 for every minute they’re late. Another charges a $20 flat late pickup fee, then tacks on larger amounts in half-hour increments.

Using money as an incentive is tricky in the case of blood donation, too. In his book, The Gift Relationship, Richard Titmuss contrasts how in 1979 people were paid for blood donation in the US versus not receiving compensation in the UK. His research showed that the money-motivated donors were more likely to be drug addicts seeking cash, and therefore the quality of blood collected had a greater likelihood of being infected with hepatitis B. Today, over 75 percent of blood collected in wealthy countries worldwide comes strictly from volunteers. Research has also shown these types of donors are more motivated by things besides money — even something as small as a logo pen.

So why would anyone want a cheap pen over cash? We’ll look at that next.

Social norms, status, and self-perception matter

Now you see how money isn’t always the best incentive to inspire people to take action. In some cases, it has the opposite effect or results in other outcomes you didn’t want. If you set a late fee too low, you’re sending the message that being late isn’t so bad. Some people are more motivated by altruism than cash.

These points are true because of what Gneezy terms “social signals” and “self-signals,” which are messages you send to others and yourself based on social norms.

Clear up mixed signals in the workplace

Let’s say you’re hired at a large bank that’s respected for being ethical. It even proudly proclaims itself as such. You’re then told your main goal is to sell eight products to each customer, and hitting that goal is how you’ll be judged and rewarded. You quickly see that this goal is much easier said than done, and you get discouraged quickly. The threat of losing your job looms. Other people seem to be hitting the goal just fine, but nothing you do seems to work. Then you ask around and are let in on a little secret: you can inflate your numbers by setting up fake accounts. Maybe your ethics alarm goes off, but you’re assured that everyone’s been doing it for years with no trouble. Meanwhile, you hear of a few people who tried to report it and were sent packing pretty quickly. You might conclude it’s an accepted practice up the chain of command, so why not give it a go?

That scenario gives a glimpse into what played out for Wells Fargo in the years leading up to 2016 when it was revealed employees had opened thousands of fake accounts totaling $3.5 million, and 5,300 employees were fired as a result. At the root of the problem? An overly simplified incentive that emphasized quantity over quality. The company claimed strong ethics as a top value yet incentivized employees to hit a number at all costs – and many of them did exactly that.

Find the sweet spot in designing incentives

The final element to using incentives to achieve results is knowing your audience and situation thoroughly, then customizing your approach accordingly. Aim for the crossroads of simplicity and thoughtful complexity.

The signal must be clear and easy to follow while taking into account the motivations and pain points of people you want to influence, including yourself. If an incentive is too simple, people will find workarounds that bring unintended outcomes, like in the case of Wells Fargo. One thing history has shown is that the simpler an incentive is, the easier it is for people to game the system to their advantage.

Key ideas in Mixed Signals

What is Mixed Signals about?

Mixed Signals (2023) sheds light on the power of incentives, drawing on behavioral economics research to explore how various factors like money, social status, and external nudges can influence our choices. It explores how incentives often have complex and counterintuitive effects, offering an understanding of these dynamics to improve decision-making and outcomes.