Why Money Can’t Buy Incentives at Scale

Decentralized incentive markets can solve complex problems at scale, but to realize this potential we must optimize two equally important domains:

(1) the technology side, by building the best protocol and tools for developers, users and others to create and participate in an incentive market;

(2) the psychology side, by understanding how to effectively motivate individual to contribute their knowledge and skills towards a common goal.

The psychological side is just as important as the technology side. In a previous article, we discussed the psychology of monetary incentives and we saw that their effects on motivation are not linear. In this article, we’ll discuss how non-monetary incentives affect motivation and how they can be used at scale in decentralized incentive markets. Non-monetary incentives are used less often than money in business and government, and the reasons are not hard to understand. Money is easy to quantify and describe, and the assumption that people respond to money is intuitive and appealing.

But it might surprise many to learn that this is an exaggerated assumption. Yes, people respond to money, but not as powerfully as we think. Consider a study done in in 1999 by psychologist Chip Heath. The study asked managers in a Citibank call center to assess what motivates their employees. Compared to how their employees described themselves, bank managers systematically overestimated the employees’ motivations related to money and compensation, such as salary and fringe benefits. Managers also underestimated the power of non-monetary incentives, such as the desire to learn new skills, doing something that makes you feel good about yourself, and accomplishing something deemed worthwhile.

The same result is found in studies involving much larger samples. Gallup repeatedly finds in its national surveys that the main reason people quit their jobs is not money, but rather that they feel unengaged in the work. Likewise, the General Social Survey (a massive nationally representative survey done biannually since 1972) finds that people rank “doing important work” as most important for them but believe that money is required to get others to work hard.

A starting point to correcting this over-emphasis on money is to get a better understanding of non-monetary incentives. The first useful distinction is between intrinsic and extrinsic motivation. Intrinsic motivation refers to motivation that comes simply for engaging in an activity — the enjoyment and meaning we derive from doing something. In contrast, extrinsic motivation comes from things outside of the activity — such as pay or recognition. The distinction is important because these two types of motivations can run opposite to each other. Studies find that introducing money (the quintessential extrinsic incentive) to an activity that people have been doing for enjoyment reduces people’s willingness to continue engaging in that activity. In other words, introducing extrinsic incentives can reduce intrinsic motivation.

Introducing a monetary component to a task that people are already doing for enjoyment can replace their intrinsic motivation with anticipation for monetary rewards, and dispirit a network. Money can be effective in getting people to do something they do not find meaningful or that they are not already doing — but not every unsolved problem is characterized by these obstacles. Sometimes people are highly motivated to work on a problem, but they cannot organize a network efficiently to solve it.

For example, consider sports fans who very intrinsically motivated to support their team. Introducing a monetary incentive in such an environment might backfire because it would replace the fans’ existing intrinsic motivation. However, symbolic incentives that build on fans’ interests can work much better — for example, the chance to win a signed jersey or meet with star players in the team. Fans may be more likely to join a network for these symbolic incentives than for money. Designing the optimal incentive system matters.

Group affiliation or tribalism, is a strong source of non-monetary incentives.

To understand how deeply the desire to be part of a group runs, consider a classic field experiment done by psychologist Muzafer Sherif and his colleagues. In the halcyon summer days of 1954, Sherif’s research team recruited 24 twelve-year old boys to participate in a study in the Robbers Cave State Park in Oklahoma. The boys were all from similar backgrounds, socio-economic, and age groups.

Initially, the boys were allowed to spend time as one large community and befriend one another. All the researchers had to do to create group affiliation — and the accompanying intergroup conflict — was to simply randomly assign half of the boys to one cabin and the other half to another cabin and cut off communication between the two groups. Almost immediately, the two groups developed their own nicknames, rituals, jargon, and values.

The tribal intergroup conflict took enormous effort to overcome, despite its absolutely random beginning.

After a few days, the researchers asked the boys to name their friends in the camp. Only 8% the boys named outgroup members as their friends, even though just a few days earlier the boys were all friends before the random groups were created. Fierce competitions, slurs against the outgroup, and even a late-night cabin raid to turn the rival boys’ stolen jeans as a trophy ensued.

Take another example. In a classic experiment, participants who were otherwise oblivious to art were shown a number of paintings made by two artists, Paul Klee and Wassily Kandinsky.

Ad Parnassum by Paul Klee (1932)

Participants then picked the favored artist of these two, and were asked to divide money between themselves and other participants.

Composition VII by Wassily Kandinsky (1913)

Simply knowing that another person chose a different artist led participants to take money from this other person and give it to the people who chose the same artist as them. Tribalism happens very quickly and does not need a rational reason to occur.

What are the implications for decentralized networks? When tribalism can be used for good, it can be a powerful incentive — much more powerful than mere money. For example, tribalism can be especially useful to motivate sports fans, music fans, and members of small towns to join networks to solve specific problems. If completely random assignments in experiments can create loyalty to the ingroup, just imagine what how motivating belonging to actual groups is.

In the next article in this series, we’ll explore the uncertainty inherent in incentives in decentralized networks.To learn more about our work, email me directly at kk@ncnt.io. To stay in the nCent loop, hear me tweet and join our international telegram channel.

References

Heath, C. (1999). On the social psychology of agency relationships: Lay theories of motivation overemphasize extrinsic incentives. Organizational Behavior and Human Decision Processes, 78, 25–62.

Deci, E. L., Koestner, R., & Ryan, R. M. (1999). A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation. Psychological Bulletin, 125, 627–668.

Sherif, M., Harvey, O. J., White, B. J., Hood, W. R., & Sherif, C. W. (1954/1988). The Robbers Cave Experiment: Intergroup Conflict and Cooperation. Wesleyan University Press: Middletown, CT.

Tajfel, H. (1970). Experiments in intergroup discrimination. Scientific American, 223, 96–102.