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Through a set of experiments desribed in his latest book “Predictably Irrational: The Hidden Forces That Shape Our Decisions“, MIT behavioral economist Dan Ariely shows how we live in two different worlds - one in which social norms prevail and one in which market norms prevail.

The social norms include friendly requests that people make, for example when a neighbor or friend asks you to move a couch or something. You do not expect to get anything in return right away, and they are usually warm and fuzzy. Most of the time they provide pleasure to both parties. Market norms on the other hand are cold and calculated, with exchanges being sharp-edged: wages, prices, rent, etc.

One of the experiments recounted by Ariely involves three groups of people who were asked to do a repeat task for 5 minutes - combining circles and squares on a computer screen. The first group was given $5 for the task, the second 50c and the third was asked to do it as a favor. The group that was paid $5 worked harder by about 50% compared to the group which was paid 50c. The group which was not paid, and which evaluated the request in their social framework instead of their market framework beat both other groups. He then repeated the test, but instead of giving money he gave the first group a gift of chocolates worth about $5, but without telling them that, the second group got a snicker bar and the third group was asked to do it as a favor again. This time all three groups achieved the same results, the same results as the original group which evaluated the request in their social framework. The last test was again with gifts, except that this time people were told the value of those gifts. The results? The same as if they would have paid people.

Another point he makes, supported by more experiments, is that once a person evaluates something within a market framework, they will continue to do so even after payments are no longer given. So it is a very bad idea to create situations in which both frameworks are mixed.

There are a ton of lessons to be learned by this, one related to giving customers incentives to help you. If you have customer support communities or innovation communities and people help you based on non-monetary incentives, like recognition, or a small gift every now and again, you could kill the dynamics of those community by introducing even tiny monetary incentives. Your customers will now switch their mindset to a market framework instead of a social framework. Now if people can be switched into a market framework and not return from that mindset, that also means that others can screw up the landscape for you. Say you have a tech support community and for some reason another vendor starts paying people for helping out - based on some of the experiments described in the book, this could actually change the perception of the value that you are giving your own community members back.

The fact that misplaced rewards and punitive actions can backfire has been a long documented fact. Many kids end up reading less than when they started when parents stop giving them monetary rewards for reading. Many more parents end up being later in day care centers that charge those parents by the minute for being tardy. Plus they no longer feel the guilt of being late because they now evaluate this transaction as a market transaction instead of as a social norms based transaction.

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