Monday, January 24, 2011

Social vs Financial Motivation

Read an interesting experiment conducted by one LBS prof on behavioural economics. He randomly picked up 80 post graduate students and divided into three different groups of roughly the same size. These three groups were assigned very similar and very boring tasks individually. The first group was informed that they will receive no payment for their work. The second group members were to get only 50 cents for their work and the third 5$.

After the day of work, it was observed that people worked very hard when they were paid nothing and worked almost not at all when they were paid 50 cents. When they were paid 5$ they worked hard again.
What was happening here? Turns out that people live in two separate markets. The first one is the social market in which we do favours to people. The second is the financial markets in which we work for labour. When people were offered nothing, they thought they were doing a favour and they worked hard. When they were paid 50 cents, they did not think that they were cooperating in the experiment and getting 50 cents on top of that. Instead these 50 cents replaced their social motivation with the financial motivation. What happened as an outcome was- they were paid very little and they worked very little. The third group worked more because they were paid more.

I think this experiment packs in a whole lot of lessons in public policy, governance and development sector


  1. this short story leaves a very broad lesson behind.. good shot, Kabir. will watch this space for more such learnings unfolded by you.

  2. VEry interesting. Have you done other analysis on this issue?