Mixed Signals — A Top of the Page Review

December 2023

Are your processes sending the right signal to your people?

I stumbled across a review of Mixed Signals in the Economist a few months back and knew it was a book I must read. As an operations consultant, I’ve worked with many leaders who mean well but have constructed work systems and incentives that contradict their desired outcomes. Invariably, their organizations fail to meet their lofty goals and their people grow frustrated and discontented.

This book shines a light on the conflict between what we say and the incentives we design: our mixed signals. More importantly, it suggests ways to align goals and incentives to drive productive behavior.

Gneezy, Uri. 2023. Mixed Signals: How Incentives Really Work. New Haven, CT: Yale University Press.

Quick Summary

Incentives play an indispensable role in influencing behavior in every corner of human interaction. From the board room to the classroom to the dining room, human beings have developed a complex series of incentives (and disincentives) to regulate behavior. Business leaders regularly look to incentives to control activity in their quest to orchestrate desired outcomes.

Incentives tell stories about what behavior should and should not be happening. The punchline, of course, is that incentives must be aligned to the desired goal, or else we end up incentivizing behavior very different from what we want to happen. The end results are mixed signals — misguided policies that reward the wrong behavior or punish the right behavior.

Ranging from business to social environments, from the personal to the professional, this book is full of examples and case studies that make the power of incentives clear.

Key Takeaways

People Management

According to Mixed Signals, people tend to fall into three categories when it comes to incentives:

1. Those who don’t need incentives to perform a task. These are the folks who tend to prove Daniel Pink’s motivation 2.0 theory.
2. Those who won’t perform a task no matter what incentive is offered. Consider the kid who refuses to eat peas no matter what it costs him.
3. Those who can be swayed by the incentive. For these folks, the incentive acts a a signal to help clarify what they should do.

Developing effective incentives that send the right signals and motivate the right behavior requires identifying how people feel and respond to incentives. Signals from incentives change the way that we feel about ourselves and how others perceive us. Good incentives work along both dimensions to make us feel good about ourselves and our motivations, as well as improving the way others perceive our behavior and motivation.

To design good incentives we must recognize the internal dialogue of our people and structure incentives that work effectively within that dialogue. It requires a deep understand of human nature and an empathy for those with whom we work.

Leadership

One of the remarkable aspects of this book is it’s unwavering call to ethical standards. Policy design must start with and commit to what is morally acceptable and necessary. All incentives derive from the baseline of moral behavior. Incentives that work to create the behavior we want to see, but violate what is morally required, fails.

The unrelenting pressure to succeed can drive moral compromises. These lapses in judgment are not leadership. Leadership is the steady commitment to doing what is right even in the face of resistance or personal cost. This commitment looks deep into a business’ system to root out areas of compromise or moral ambiguity. True leadership articulates a clear vision setting boundaries about how that vision may be achieved and then shepherds those who chose to join the journey to ensure their growth and progress.

Memorable Quotes

1️⃣

“Examples of…mixed signals include the following:

• Encouraging teamwork but incentivizing individual success
• Encouraging long-term goals but incentivizing short-term success
• Inspiring innovation and risk-taking but punishing failure
• Emphasizing the importance of quality but paying for quantity”

2️⃣

“[W]hen you push people to increase one dimension of their output, you can create unintended effects on the other dimensions. You need to make sure what you incentivize is indeed what you want to encourage. Understanding this effect is key.”

3️⃣

“If you want innovation and risk-taking, don’t send a mixed signal by punishing failures — reward them!”

4️⃣

“[Incentives] send a signal, and your objective is to make sure this signal is aligned with your goals.”

Final Thoughts

At the heart of this book is the admonishment to think carefully about what behaviors your incentives (and disincentives) encourage and to be very clear and intentional about how those incentivized behaviors fit your actual goal. Ultimately the goal is to design simple, effective, and ethical incentives that avoid sending mixed signals.

To design such systems we must understand the power of incentives and the complexities of human behavior. We must look carefully at the entire system and understand the ways in which competing objectives play into our priorities and our responses to events. Incentives are no substitute for well designed systems that guide and enable the behaviors that provide value and validation to the people with the system. Rather, incentives are inherently part of such a well-designed system, signaling how behavior and desired outcomes work together for the good of all stakeholders.

Learn more about Top of the Page

Thanks for reading! I am a self professed nerd who loves reading and learning. To me every book is a conversation. By the end of the conversation, I always have new ideas that I want to try. What are you reading?