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As it turned out, the participants were not motivated to work at all when they got the 50-cent Snickers bar, and in fact the effort they invested was the same as when they got a payment of 50 cents. They reacted to the explicitly priced gift in exactly the way they reacted to cash, and the gift no longer invoked social norms—by the mention of its cost, the gift had passed into the realm of market norms.
By the way, we replicated the setup later when we asked passersby whether they would help us unload a sofa from a truck. We found the same results. People are willing to work free, and they are willing to work for a reasonable wage; but offer them just a small payment and they will walk away. Gifts are also effective for sofas, and offering people a gift, even a small one, is sufficient to get them to help; but mention what the gift cost you, and you will see the back of them faster than you can say market norms.
THESE RESULTS SHOW that for market norms to emerge, it is sufficient to mention money (even when no money changes hands). But, of course, market norms are not just about effort—they relate to a broad range of behaviors, including self-reliance, helping, and individualism. Would simply getting people to think about money influence them to behave differently in these respects? This premise was explored in a set of fantastic experiments by Kathleen Vohs (a professor at the University of Minnesota), Nicole Mead (a graduate student at Florida State University), and Miranda Goode (a graduate student at the University of British Columbia).
They asked the participants in their experiments to complete a “scrambled-sentence task,” that is, to rearrange sets of words to form sentences. For the participants in one group, the task was based on neutral sentences (for example, “It’s cold outside”); for the other group, the task was based on sentences or phrases related to money (for example, “High-paying salary”* (#litres_trial_promo)). Would thinking about money in this manner be sufficient to change the way participants behave?
In one of the experiments, the participants finished the unscrambling task and were then given a difficult puzzle, in which they had to arrange 12 disks into a square. As the experimenter left the room, he told them that they could come to him if they needed any help. Who do you think asked for help sooner—those who had worked on the “salary” sentences, with their implicit suggestion of money; or those who had worked on the “neutral” sentences, about the weather and other such topics? As it turned out, the students who had first worked on the “salary” task struggled with the puzzle for about five and a half minutes before asking for help, whereas those who had first worked on the neutral task asked for help after about three minutes. Thinking about money, then, made the participants in the “salary” group more self-reliant and less willing to ask for help.
But these participants were also less willing to help others. In fact, after thinking about money these participants were less willing to help an experimenter enter data, less likely to assist another participant who seemed confused, and less likely to help a “stranger” (an experimenter in disguise) who “accidentally” spilled a box of pencils.
Overall, the participants in the “salary” group showed many of the characteristics of the market: they were more selfish and self-reliant; they wanted to spend more time alone; they were more likely to select tasks that required individual input rather than teamwork; and when they were deciding where they wanted to sit, they chose seats farther away from whomever they were told to work with. Indeed, just thinking about money makes us behave as most economists believe we behave—and less like the social animals we are in our daily lives.
This leads me to a final thought: when you’re in a restaurant with a date, for heaven’s sake don’t mention the price of the selections. Yes, they’re printed clearly on the menu. Yes, this might be an opportunity to impress your date with the caliber of the restaurant. But if you rub it in, you’ll be likely to shift your relationship from the social to the market norm. Yes, your date may fail to recognize how much this meal is setting you back. Yes, your mother-in-law may assume that the bottle of wine you’ve presented is a $10 blend, when it’s a $60 special reserve merlot. That’s the price you have to pay, though, to keep your relationships in the social domain and away from market norms.
SO WE LIVE in two worlds: one characterized by social exchanges and the other characterized by market exchanges. And we apply different norms to these two kinds of relationships. Moreover, introducing market norms into social exchanges, as we have seen, violates the social norms and hurts the relationships. Once this type of mistake has been committed, recovering a social relationship is difficult. Once you’ve offered to pay for the delightful Thanksgiving dinner, your mother-in-law will remember the incident for years to come. And if you’ve ever offered a potential romantic partner the chance to cut to the chase, split the cost of the courting process, and simply go to bed, the odds are that you will have wrecked the romance forever.
My good friends Uri Gneezy (a professor at the University of California at San Diego) and Aldo Rustichini (a professor at the University of Minnesota) provided a very clever test of the long-term effects of a switch from social to market norms.
A few years ago, they studied a day care center in Israel to determine whether imposing a fine on parents who arrived late to pick up their children was a useful deterrent. Uri and Aldo concluded that the fine didn’t work well, and in fact it had long-term negative effects. Why? Before the fine was introduced, the teachers and parents had a social contract, with social norms about being late. Thus, if parents were late—as they occasionally were—they felt guilty about it—and their guilt compelled them to be more prompt in picking up their kids in the future. (In Israel, guilt seems to be an effective way to get compliance.) But once the fine was imposed, the day care center had inadvertently replaced the social norms with market norms. Now that the parents were paying for their tardiness, they interpreted the situation in terms of market norms. In other words, since they were being fined, they could decide for themselves whether to be late or not, and they frequently chose to be late. Needless to say, this was not what the day care center intended.
BUT THE REAL story only started here. The most interesting part occurred a few weeks later, when the day care center removed the fine. Now the center was back to the social norm. Would the parents also return to the social norm? Would their guilt return as well? Not at all. Once the fine was removed, the behavior of the parents didn’t change. They continued to pick up their kids late. In fact, when the fine was removed, there was a slight increase in the number of tardy pickups (after all, both the social norms and the fine had been removed).
This experiment illustrates an unfortunate fact: when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish. Once the bloom is off the rose—once a social norm is trumped by a market norm—it will rarely return.
THE FACT THAT we live in both the social world and the market world has many implications for our personal lives. From time to time, we all need someone to help us move something, or to watch our kids for a few hours, or to take in our mail when we’re out of town. What’s the best way to motivate our friends and neighbors to help us? Would cash do it—a gift, perhaps? How much? Or nothing at all? This social dance, as I’m sure you know, isn’t easy to figure out—especially when there’s a risk of pushing a relationship into the realm of a market exchange.
Here are some answers. Asking a friend to help move a large piece of furniture or a few boxes is fine. But asking a friend to help move a lot of boxes or furniture is not—especially if the friend is working side by side with movers who are getting paid for the same task. In this case, your friend might begin to feel that he’s being used. Similarly, asking your neighbor (who happens to be a lawyer) to bring in your mail while you’re on vacation is fine. But asking him to spend the same amount of time preparing a rental contract for you—free—is not.
THE DELICATE BALANCE between social and market norms is also evident in the business world. In the last few decades companies have tried to market themselves as social companions—that is, they’d like us to think that they and we are family, or at least are friends who live on the same cul-de-sac. “Like a good neighbor, State Farm is there” is one familiar slogan. Another is Home Depot’s gentle urging: “You can do it. We can help.”
Whoever started the movement to treat customers socially had a great idea. If customers and a company are family, then the company gets several benefits. Loyalty is paramount. Minor infractions—screwing up your bill and even imposing a modest hike in your insurance rates—are accommodated. Relationships of course have ups and downs, but overall they’re a pretty good thing.
But here’s what I find strange: although companies have poured billions of dollars into marketing and advertising to create social relationships—or at least an impression of social relationships—they don’t seem to understand the nature of a social relationship, and in particular its risks.
For example, what happens when a customer’s check bounces? If the relationship is based on market norms, the bank charges a fee, and the customer shakes it off. Business is business. While the fee is annoying, it’s nonetheless acceptable. In a social relationship, however, a hefty late fee—rather than a friendly call from the manager or an automatic fee waiver—is not only a relationship-killer; it’s a stab in the back. Consumers will take personal offense. They’ll leave the bank angry and spend hours complaining to their friends about this awful bank. After all, this was a relationship framed as a social exchange. No matter how many cookies, slogans, and tokens of friendship a bank provides, one violation of the social exchange means that the consumer is back to the market exchange. It can happen that quickly.
What’s the upshot? If you’re a company, my advice is to remember that you can’t have it both ways. You can’t treat your customers like family one moment and then treat them impersonally—or, even worse, as a nuisance or a competitor—a moment later when this becomes more convenient or profitable. This is not how social relationships work. If you want a social relationship, go for it, but remember that you have to maintain it under all circumstances.
On the other hand, if you think you may have to play tough from time to time—charging extra for additional services or rapping knuckles swiftly to keep the consumers in line—you might not want to waste money in the first place on making your company the fuzzy feel-good choice. In that case, stick to a simple value proposition: state what you give and what you expect in return. Since you’re not setting up any social norms or expectations, you also can’t violate any—after all, it’s just business.
COMPANIES HAVE ALSO tried to establish social norms with their employees. It wasn’t always this way. Years ago, the workforce of America was more of an industrial, market-driven exchange. Back then it was often a nine-to-five, time-clock kind of mentality. You put in your 40 hours and you got your paycheck on Friday. Since workers were paid by the hour, they knew exactly when they were working for the man, and when they weren’t. The factory whistle blew (or the corporate equivalent took place), and the transaction was finished. This was a clear market exchange, and it worked adequately for both sides.
Today companies see an advantage in creating a social exchange. After all, in today’s market we’re the makers of intangibles. Creativity counts more than industrial machines. The partition between work and leisure has likewise blurred. The people who run the workplace want us to think about work while we’re driving home and while we’re in the shower. They’ve given us laptops, cell phones, and BlackBerries to bridge the gap between the workplace and home.
Further blurring the nine-to-five workday is the trend in many companies to move away from hourly rates to monthly pay. In this 24/7 work environment social norms have a great advantage: they tend to make employees passionate, hardworking, flexible, and concerned. In a market where employees’ loyalty to their employers is often wilting, social norms are one of the best ways to make workers loyal, as well as motivated.
Open-source software shows the potential of social norms. In the case of Linux and other collaborative projects, you can post a problem about a bug on one of the bulletin boards and see how fast someone, or often many people, will react to your request and fix the software—using their own leisure time. Could you pay for this level of service? Most likely. But if you had to hire people of the same caliber they would cost you an arm and a leg. Rather, people in these communities are happy to give their time to society at large (for which they get the same social benefits we all get from helping a friend paint a room). What can we learn from this that is applicable to the business world? There are social rewards that strongly motivate behavior—and one of the least used in corporate life is the encouragement of social rewards and reputation.
IN TREATING THEIR EMPLOYEES—much as in treating their customers—companies must understand their implied long-term commitment. If employees promise to work harder to achieve an important deadline (even canceling family obligations for it), if they are asked to get on an airplane at a moment’s notice to attend a meeting, then they must get something similar in return—something like support when they are sick, or a chance to hold on to their jobs when the market threatens to take their jobs away.
Although some companies have been successful in creating social norms with their workers, the current obsession with short-term profits, outsourcing, and draconian cost cutting threatens to undermine it all. In a social exchange, after all, people believe that if something goes awry the other party will be there for them, to protect and help them. These beliefs are not spelled out in a contract, but they are general obligations to provide care and help in times of need.
Again, companies cannot have it both ways. In particular, I am worried that the recent cuts we see in employees’ benefits—child care, pensions, flextime, exercise rooms, the cafeteria, family picnics, etc.—are likely to come at the expense of the social exchange and thus affect workers’ productivity. I am particularly worried that cuts and changes in medical benefits are likely to transform much of the employer-employee social relationship to a market relationship.
If companies want to benefit from the advantages of social norms, they need to do a better job of cultivating those norms. Medical benefits, and in particular comprehensive medical coverage, are among the best ways a company can express its side of the social exchange. But what are many companies doing? They are demanding high deductibles in their insurance plans, and at the same time are reducing the scope of benefits. Simply put, they are undermining the social contract between the company and the employees and replacing it with market norms. As companies tilt the board, and employees slide from social norms to the realm of market norms, can we blame them for jumping ship when a better offer appears? It’s really no surprise that “corporate loyalty,” in terms of the loyalty of employees to their companies, has become an oxymoron.
Organizations can also think consciously about how people react to social and market norms. Should you give an employee a gift worth $1,000 or pay him or her an extra $1,000 in cash? Which is better? If you ask the employees, the majority will most likely prefer cash over the gift. But the gift has its value, though this is sometimes ill understood—it can provide a boost to the social relationship between the employer and the employee, and by doing so provide long-term benefits to everyone. Think of it this way: who do you suppose is likely to work harder, show more loyalty, and truly love his work more—someone who is getting $1,000 in cash or someone who is getting a personal gift?
Of course, a gift is a symbolic gesture. And to be sure, no one is going to work for gifts rather than a salary. For that matter, no one is going to work for nothing. But if you look at companies like Google, which offers a wide variety of benefits for employees (including free gourmet lunches), you can see how much goodwill is created by emphasizing the social side of the company-worker relationship. It’s remarkable how much work companies (particularly start-ups) can get out of people when social norms (such as the excitement of building something together) are stronger than market norms (such as salaries stepping up with each promotion).
If corporations started thinking in terms of social norms, they would realize that these norms build loyalty and—more important—make people want to extend themselves to the degree that corporations need today: to be flexible, concerned, and willing to pitch in. That’s what a social relationship delivers.
THIS QUESTION OF social norms in the workplace is one we should be thinking about frequently. America’s productivity depends increasingly on the talent and efforts of its workers. Could it be that we are driving business from the realm of social norms into market norms? Are workers thinking in terms of money, rather than the social values of loyalty and trust? What will that do to American productivity in the long run, in terms of creativity and commitment? And what of the “social contract” between government and the citizen? Is that at risk as well?
At some level we all know the answers. We understand, for instance, that a salary alone will not motivate people to risk their lives. Police officers, firefighters, soldiers—they don’t die for their weekly pay. It’s the social norms—pride in their profession and a sense of duty—that will motivate them to give up their lives and health. A friend of mine in Miami once accompanied a U.S. customs agent on a patrol of the offshore waters. The agent carried an assault rifle and could certainly have pounded several holes into a fleeing drug boat. But had he ever done so? No way, he replied. He wasn’t about to get himself killed for the government salary he received. In fact, he confided, his group had an unspoken agreement with the drug couriers: the feds wouldn’t fire if the drug dealers didn’t fire. Perhaps that’s why we rarely (if ever) hear about gun battles on the edges of America’s “war on drugs.”
How could we change this situation? First, we could make the federal salary so good that the customs agent would be willing to risk his life for it. But how much money is that? Compensation equal to what the typical drug trafficker gets for racing a boat from the Bahamas to Miami? Alternatively, we could elevate the social norm, making the officer feel that his mission is worth more than his base pay—that we honor him (as we honor our police and firefighters) for a job which not only stabilizes the structure of society but also saves our kids from all kinds of dangers. That would take some inspirational leadership, of course, but it could be done.
Let me describe how that same thought applies to the world of education. I recently joined a federal committee on incentives and accountability in public education. This is one aspect of social and market norms that I would like to explore in the years to come. Our task is to reexamine the “No Child Left Behind” policy, and to help find ways to motivate students, teachers, administrators, and parents.
My feeling so far is that standardized testing and performance-based salaries are likely to push education from social norms to market norms. The United States already spends more money per student than any other Western society. Would it be wise to add more money? The same consideration applies to testing: we are already testing very frequently, and more testing is unlikely to improve the quality of education.
I suspect that one answer lies in the realm of social norms. As we learned in our experiments, cash will take you only so far—social norms are the forces that can make a difference in the long run. Instead of focusing the attention of the teachers, parents, and kids on test scores, salaries, and competition, it might be better to instill in all of us a sense of purpose, mission, and pride in education. To do this we certainly can’t take the path of market norms. The Beatles proclaimed some time ago that you “Can’t Buy Me Love” and this also applies to the love of learning—you can’t buy it; and if you try, you might chase it away.
So how can we improve the educational system? We should probably first rethink school curricula, and link them in more obvious ways to social goals (elimination of poverty and crime, elevation of human rights, etc.), technological goals (boosting energy conservation, space exploration, nanotechnology, etc.), and medical goals (cures for cancer, diabetes, obesity, etc.) that we care about as a society. This way the students, teachers, and parents might see the larger point in education and become more enthusiastic and motivated about it. We should also work hard on making education a goal in itself, and stop confusing the number of hours students spend in school with the quality of the education they get. Kids can get excited about many things (baseball, for example), and it is our challenge as a society to make them want to know as much about Nobel laureates as they now know about baseball players. I am not suggesting that igniting a social passion for education is simple; but if we succeed in doing so, the value could be immense.
MONEY, AS IT turns out, is very often the most expensive way to motivate people. Social norms are not only cheaper, but often more effective as well.
So what good is money? In ancient times, money made trading easier: you didn’t have to sling a goose over your back when you went to market, or decide what section of the goose was equivalent to a head of lettuce. In modern times money has even more benefits, as it allows us to specialize, borrow, and save.
But money has also taken on a life of its own. As we have seen, it can remove the best in human interactions. So do we need money? Of course we do. But could there be some aspects of our life that would be, in some ways, better without it?
That’s a radical idea, and not an easy one to imagine. But a few years ago I had a taste of it. At that time, I got a phone call from John Perry Barlow, a former lyricist for the Grateful Dead, inviting me to an event that proved to be both an important personal experience and an interesting exercise in creating a moneyless society. Barlow told me that I had to come to Burning Man with him, and that if I did, I would feel as if I had come home. Burning Man is an annual week-long event of self-expression and self-reliance held in Black Rock Desert, Nevada, regularly attended by more than 40,000 people. Burning Man started in 1986 on Baker Beach in San Francisco, when a small crowd designed, built, and eventually set fire to an eight-foot wooden statue of a man and a smaller wooden dog. Since then the size of the man being burned and the number of people who attend the festivities has grown considerably, and the event is now one of the largest art festivals, and an ongoing experiment in temporary community.
Burning Man has many extraordinary aspects, but for me one of the most remarkable is its rejection of market norms. Money is not accepted at Burning Man. Rather, the whole place works as a gift exchange economy—you give things to other people, with the understanding that they will give something back to you (or to someone else) at some point in the future. Thus, people who can cook might fix a meal. Psychologists offer free counseling sessions. Masseuses massage those lying on tables before them. Those who have water offer showers. People give away drinks, homemade jewelry, and hugs. (I made some puzzles at the hobby shop at MIT, and gave them to people. Mostly, people enjoyed trying to solve them.)
At first this was all very strange, but before long I found myself adopting the norms of Burning Man. I was surprised, in fact, to find that Burning Man was the most accepting, social, and caring place I had ever been. I’m not sure I could easily survive in Burning Man for all 52 weeks of the year. But this experience has convinced me that life with fewer market norms and more social norms would be more satisfying, creative, fulfilling, and fun.
The answer, I believe, is not to re-create society as Burning Man, but to remember that social norms can play a far greater role in society than we have been giving them credit for. If we contemplate how market norms have gradually taken over our lives in the past few decades—with their emphasis on higher salaries, more income, and more spending—we may recognize that a return to some of the old social norms might not be so bad after all. In fact, it might bring quite a bit of the old civility back to our lives.
Reflections on Social Norms: Lessons on Gifts
When we mix social and monetary norms, strange and undesirable things can happen. For example, if you walk your date home after a wonderful evening together, don’t mention how much the evening set you back. That is not a good strategy for getting a passionate good-night kiss. (I certainly do not recommend this as an experiment, but if you do try it, let me know how it turns out.) Dating, of course, is just one arena in which we can mess up a social relationship by introducing financial norms, and this danger lurks around many corners.
On some level we all know this, and therefore we sometimes deliberately make decisions that do not fall into line with rational economic theory. Think of gifts, for example. From a standard economic perspective, they are a waste of money. Imagine that you invite me to your home for dinner one evening, and I decide to spend $50 on a nice bottle of Bordeaux as a token of gratitude. There are some problems with this decision: You might not like Bordeaux. You might have preferred something else: a copy of Predictably Irrational, a DVD of Citizen Kane, or a blender. This means that the bottle of wine that cost me $50 might be worth, at most, $25 to you in terms of its utility. That is, for $25 you could get something else that would make you just as happy as my $50 bottle of wine.
Now, if giving gifts was a rational activity, I would come to dinner and say, “Thank you for inviting me for dinner. I was going to spend $50 on a bottle of Bordeaux, but I realize that this might provide you with far less happiness than $50 in cash.” I peel off five $10 bills, hand them to you, and add, “Here you go. You can decide how best to spend it.” Or maybe I would give you $40 in cash and make us both better off—not to mention saving myself the trouble of shopping for wine.
Although we all realize that offering cash instead of gifts is more economically efficient, I don’t expect that many people will follow this rational advice, because we all know that doing so will in no way endear us to our hosts. If you want to demonstrate affection, or strengthen your relationship, then giving a gift—even at the risk that it won’t be appreciated as much as you hoped—is the only way to go.
So imagine two scenarios. Let’s say it’s the holidays, and two different neighbors invite you to their parties in the same week. You accept both invitations. In one case, you do the irrational thing and give Neighbor X a bottle of Bordeaux; for the second party you adopt the rational approach and give Neighbor Z $50 in cash. The following week, you need some help moving a sofa. How comfortable would you be approaching each of your neighbors, and how do you think each would react to your request for a favor? The odds are that Neighbor X will step in to help. And Neighbor Z? Since you have already paid him once (to make and share dinner with you), his logical response to your request for help might be, “Fine. How much will you pay me this time?” Again, the prospect of acting rationally, financially speaking, sounds deeply irrational in terms of social norms.
The point is that while gifts are financially inefficient, they are an important social lubricant. They help us make friends and create long-term relationships that can sustain us through the ups and downs of life. Sometimes, it turns out, a waste of money can be worth a lot.
Reflections on Social Norms: Benefits in the Workplace
The same general principles regarding social norms also apply to the workplace. In general, people work for a paycheck, but there are other, intangible benefits we get from our jobs. These are also very real and very important, yet much less understood.
Often, when I’m on a flight and the people sharing the row with me don’t immediately put their headphones on, I enter into an interesting discussion with one of them. Invariably, I learn a lot about my neighbor’s work, work history, and future projects. On the other hand, I discover very little about the person’s family, favorite music, movies, or hobbies. Unless my neighbor gives me a business card, I almost never learn his or her name until the moment we are both about to leave the plane. There are probably many reasons for this, but I suspect that one of them is that most people take a lot of pride in their work. Of course this may not be true of everyone, but I think that for many people the workplace is not just a source of money but also a source of motivation and self-definition.
Such feelings benefit both the workplace and the employee. Employers who can foster these feelings gain dedicated, motivated employees who think about solving job-related problems even after the workday is over. And employees who take pride in their work feel a sense of happiness and purpose. But in the same way that market norms may undermine social norms, it may be that market norms also erode the pride and meaning people get from the workplace (for example, when we pay schoolteachers according to their students’ performance on standardized tests).
Imagine that you work for me, and that I want to give you a year-end bonus. I offer you a choice: $1,000 in cash or an all-expenses-paid weekend in the Bahamas, which would cost me $1,000. Which option would you choose? If you are like most people who have answered this question, you would take the cash. After all, you may have already been to the Bahamas and may not have enjoyed being there very much, or maybe you’d prefer to spend a weekend at a resort closer to home and use the remainder of the bonus money to buy a new iPod. In either case, you think that you can best decide for yourself how to spend the money.
This arrangement seems to be financially efficient, but would it increase your happiness with your work, or your loyalty to the company? Would it make me a better boss? Would it improve the employer-employee relationship in any way? I suspect that both your and my best interests would be better served if I simply didn’t offer you a choice and just sent you on the Bahamas vacation. Consider how much more relaxed and refreshed you would feel, and how well you would perform, after a relaxing weekend of sun and sand, compared with how you would feel and behave after you got the $1,000 bonus. Which would help you feel more committed to your job, more enjoyment in your work, more dedication to your boss? Which gift would make you more likely to stay long hours one night to meet an important deadline? On all of these, the vacation beats the cash hands down.
This principle doesn’t apply only to gifts. Many employers, in an effort to show their employees how well they are treating them, add different line items to their paycheck stubs, describing exactly how much money the employer is spending on health care, retirement plans, the gym at work, and the cafeteria. These items are all legitimate, and they reflect real costs to the employer, but overtly stating the prices of these items changes the workplace from a social environment in which the employer and employee have a deep commitment to each other to a transactional relationship. Explicitly stating the financial value of these benefits can also diminish enjoyment, motivation, and loyalty to the workplace—negatively affecting both the employer-employee relationship and our own pride and happiness at work.
Gifts and employee benefits seem, at first glance, to be an odd and inefficient way of allocating resources. But with the understanding that they fulfill an important role in creating long-term relationships, reciprocity, and positive feelings, companies should try to keep benefits and gifts in the social realm.
Reflections on Market Norms and Romance
One of the great philosophers of our time, Jerry Seinfeld, unintentionally demonstrated that social and market norms—much like an acid and a base in chemistry—clash if we try to mix them. In one episode of Seinfeld, Jerry hires a maid. This is not all that unusual in itself, except that in this case, the maid happens to be very attractive and naturally (for New York City) she is waiting to be “discovered.” Elaine predicts the inevitable, that Jerry will eventually start dating the maid. Later, after celebrating being right about her prediction, she comments sarcastically on what a prudent undertaking it is to date one’s maid. Here Elaine sagely points out the inherent difficulties in uniting the market norm (maid) and social norm (girlfriend). Jerry, expecting as much, gives a haphazard defense, arguing that he would never trip lightly into such a fraught situation and claiming that their personal and work relationships are completely separate. When the next inevitable evolution of their “relationship” occurs—that is, the maid/girlfriend stops cleaning entirely (but takes the money anyway)—Kramer is horrified and calls Jerry a john, picking up on the fact that it’s not exactly normal to pay one’s significant other for services rendered. Both relationships (girlfriend and maid) end when Jerry claims that they’re through and, in the same breath, that she’s fired. What happened is that Jerry mixed two competing norms—social and market—before realizing that they cannot comfortably coexist.
Romantic relationships, in both fiction and real life, can provide useful insights into a lot of areas in behavioral economics. But as we’ve already seen, they are particularly useful in helping us think about the strange combinations of social and market norms. One wonderfully sad example of a person who did not understand this complexity is a woman in New York who, in 2007, posted a personal ad on Craigslist. In her ad, she said that she was seeking a husband who earned more than $500,000 a year. She described herself as “spectacularly beautiful,” “articulate,” and “superficial.” She also said that while she had no problems dating businessmen who made $250,000, she was unable to break the $250,000 barrier and find someone above this income level. She hoped to date someone who could get her what she really wanted: a nice apartment on Central Park West.
Let’s assume, for the sake of argument, that this woman really was spectacularly beautiful, articulate, and wonderful in every way. What would happen if she walked into a bar filled with stockbrokers, found her guy, and explicitly stated her goal as she did in the ad, and he accepted her offer? The terms of the relationship would certainly be established, putting them firmly in the market norm, rather than the social norm, domain.
Now, say that this “happy” couple eventually gets married. What would happen the first time she didn’t want to have sex with her stockbroker husband or refused to spend the holidays with his mother? My guess is that the give-and-take that is so common and acceptable in regular romantic relationships (and in every social exchange) would not be part of this relationship . . . and that the explicit exchange of beauty for money would ensure that the relationship would break down.
I don’t actually know what became of this woman, but the responses to her ad make me suspect that this approach to finding a husband did not have a good ending. Because she bluntly introduced market norms into the relationship she was looking for, many respondents compared her offer to a business transaction. In fact, one anonymous respondent took her market norms framing to the next level. He assured the woman that he met her criteria but explained that the proposal was a “crappy business deal” because his assets (money) were likely to appreciate over time, while her assets (looks) would certainly depreciate as she aged. He also added, correctly, that in this situation, the economically rational thing to do would be to lease rather than buy.
CHAPTER 5
The Power of a Free Cookie
How free Can Make Us Less Selfish
Some time ago, I decided to go watch firsthand one of the most infamous acts of raw, unabashed, supply-and-demand capitalism in action. I am talking, of course, about Filene’s Basement’s “Running of the Brides”—an event that has been held annually since 1947 and is the department store’s answer to the famous “Running of the Bulls” in Pamplona, Spain. Instead of watching thousand-pound bulls trampling and goring foolhardy humans, I observed about a thousand blushing brides-to-be (and their minions) trampling one another in a mass grab for discount-priced designer wedding dresses. According to the store’s Web site,
gowns originally priced at thousands of dollars are on this day offered for a pittance, from $249 to $699.
Early on the morning of the sale, the brides, each with a small army of moms and friends, line up outside the store (some even camp out the night before). The minute the doors open, they turn into a frantic, screaming, pushing mob, running to the racks to tear off as many dresses as they can carry. (One piece of particularly useful advice for brides: put all your friends in brightly colored uniforms or silly headgear so you can identify them in the melee as they grab armfuls of dresses.) It takes just a minute or so for the racks to be stripped to bare metal. As soon as they have their piles of dresses, the women strip off their clothes and begin trying them on. Dresses that don’t fit are tossed aside, and the poor, bedraggled store assistants try to pick them off the floor and re-rack them.
Although I’d heard horror stories of injuries and scuffles, I personally didn’t see a lot of violence. But I did witness rampant selfishness, to say nothing of the air turning blue from the terrible language. (I suspect that if their fiancés were to witness this event, it might have led to a serious rethinking of marriage proposals.)
NOW, TRADITIONAL ECONOMICS takes a very simple and straightforward view of the scene at Filene’s Basement when prices on wedding gowns are so dramatically reduced. When a Vera Wang gown is reduced from $10,000 to $249, the excitement (“demand,” in economic-speak) over the gown dramatically increases. More precisely, demand increases for two reasons. According to the first law of demand, it increases because more women are now in the market for designer gowns (they can now afford them). And according to the second law of demand, it increases because at these prices women might buy multiple units. This second law is less relevant for wedding gowns, where women presumably need just one, but central in cases where we need multiple units (cookies, sweaters, etc.). Still, even in the case of wedding dresses, multiple women have been sighted leaving Filene’s Basement with more than one gown. These two laws are the nuts and bolts of the standard economic rule of demand. (Admittedly, the Filene’s event isn’t just any occurrence of “increased demand.” It’s more like an all-out bridal battlefield.)
THESE TWO ECONOMIC laws of demand seem perfectly reasonable, but as we learned in Chapter 4, “The Cost of Social Norms,” market rules are just some of the forces that operate on us. As social animals, we also have social forces to contend with—and when economic and social forces mix, the outcome is sometimes different from what we would expect. When we explored the interactions between social and market norms, we basically found that when we add money to a situation that operates on social norms, motivation can decrease rather than increase. For example, if I asked you to help me change my tire, you’ll probably think to yourself: “Okay, Dan’s a nice enough guy most of the time, so I will be happy to help him out.” But if I asked you: “Would you help me change the tire of my car—how about [checking my wallet] $3 for your help?” Now you’ll think: “Man, no way, what a jerk! Does he really think my time is worth that little?” What this means is that when I ask you for a favor and add $3 to the mix, you don’t think to yourself: “How wonderful! I get to help Dan and I get to earn $3.” Instead, you change your perspective on the situation, look at it as work, and conclude that it is not worth your time (of course, if I offered you $175, you would most likely take on this job).
The basic lesson, then, is that when we offer people a financial payment in a situation that is governed by social norms, the added payment could actually reduce their motivation to engage and help out.
But what if the situation was reversed and we asked people to pay us for something? Would the effect of social norms work in the same way? This was the question that Uri Gneezy (a professor at the University of California at San Diego), Ernan Haruvy (a professor at the University of Texas at Dallas), and I wanted to explore: the effect of mixing social and market norms on demand.
To think more concretely about this effect, imagine that one of your coworkers—let’s call her Susan—also happens to be a rather talented baker. One weekend, in a fit of boredom, Susan bakes a hundred chewy chocolate-chip-oatmeal cookies using her grandmother’s famous recipe, and it just so happens that there are about a hundred people in the
office. Since your desk is adjacent to hers, Susan comes
to your office first and places before you the box with all those delicious-smelling confections. How many would you take, and how would you decide this? Chances are you would quickly consider, among other things, your level of hunger, your waistline, and your love of chocolate-chip-oatmeal cookies. You might also think about how your
co-workers would feel if the cookies ran out, and if they learned that you took a lot of them. With all this in mind, including the importance of social norms, you decide to take one or two.
Now, consider a variation of this situation. This time, Susan comes by your desk asking you if you want to buy cookies for a nickel a piece. Now how many would you take, and what would dictate your decision? Most likely, you would again take into account your level of hunger, your waistline, and your love of chocolate-chip-oatmeal cookies. But unlike the previous case, this time you will have no compunction about buying a bunch to eat and take home (knowing how much your kids would love them), and you would not even think about the fact that by getting so many of Susan’s cookies you are depriving your coworkers from that same joy.
Why would your decision change so much once Susan asks for a nickel apiece? Because, very simply, by asking for money, she has introduced market norms into the equation, and these have chased away the social norms that governed the case of the free cookies. More interesting, it’s clear in both cases that if you take multiple cookies, there will be fewer for the other people in your office. But if Susan offers her cookies for free, I am willing to bet that you will think about social justice, the consequences of appearing greedy, and the welfare of your coworkers. Once money is introduced into the exchange, you stop thinking about what’s socially right and wrong, and you simply want to maximize your cookie intake.
In the same way, if you go to Filene’s Basement and discover a fantastic deal on wedding gowns, you don’t naturally think about all the other women who would also like to score a similar deal on their Vera Wangs—and therefore you grab as many dresses as you can. In economic exchanges, we are perfectly selfish and unfair. And we think that following our wallets is the right thing to do.
URI, ERNAN, AND I decided to find out what would actually happen in the two Susan cookie scenarios. To that end, we set up one of our makeshift candy stands at the MIT student center and watched for the outcome of two experimental scenarios:
Scenario 1: Pretend you’re a college student hurrying through the student center on your way to a late afternoon class. You see a booth up ahead with a sign that reads “Starburst Fruit Chews for 1¢ each.” Let’s say that, thinking quickly, you recall that you haven’t eaten lunch, that the last time you bought Starburst was in the movie theater, and, hey, they’re only one cent each. So you go over and buy ten Starbursts. Lunch is served!
Scenario 2: The setting is the same, but this time the sign reads “Starburst Fruit Chews for free.” You reminisce over the memory of popping these candies in your mouth when you went to the movies as a kid, happily recalling that it was one of the few times your parents allowed you to eat lots of sugar. Now what would you do? How many Starbursts would you take? According to the two laws of demand, with this new, irresistibly reduced price of zero, more people will go for the Starburst, and those who do will take more of the colorful square candy.
We set up our candy booth in the afternoon hours when the stream of students was more or less steady, and from time to time, we switched the conditions by alternating the free and the 1¢ signs (the penny price represented what we called the “monetary condition”). We counted the number of students who stopped by our booth and how many Starbursts they either bought or picked up. We found that during an average hour in the monetary condition, about 58 students stopped by and purchased candy, while in an average hour in the free condition, 207 students stopped by to take candy. Altogether, nearly three times the number of students stopped at the booth when Starbursts were free. Just as the theory of demand predicts, the decrease in price resulted in a greater number of people consuming the product. So far so good for the first law of demand.
Now, given the second law of demand, you’d assume that once the price drops from 1¢ to zero, each of the students who took candy would take more units. And since the number of students who stopped by was almost three times as large, you might expect that together these two forces of demand will make the total demand in our free condition much larger than the demand in the monetary condition.
So how many more Starbursts did our students pick up
when they were free? Trick question: They picked up fewer Starbursts!
When the Starbursts cost a cent apiece, the average number of candies per customer was 3.5, but when the price went down to zero, the average went down to 1.1 per customer. The students limited themselves to a large degree when the candy was free. In fact, almost all the students applied a very simple social-norm rule in this situation—they politely took one and only one Starburst. This, of course, is the opposite of the second law of demand. And how did these two forces of demand work together? In total, the increase due to the greater number of people that stopped by and the decrease due to the reduction in the number of candies that each person took resulted in students collectively taking fewer Starbursts as the price decreased from 1¢ to free.
What these results mean is that when price is not a part of the exchange, we become less selfish maximizers and start caring more about the welfare of others. We saw this demonstrated by the fact that when the price decreased to zero, customers restrained themselves and took far fewer units. So while the product (candy, in our case) was more attractive to more people, it also made people think more about others, care about them, and sacrifice their own desires for the benefit of others. As it turns out, we are caring social animals, but when the rules of the game involve money, this tendency is muted.
THE RESULTS FROM our experiment also help explain one of the great mysteries in life: why, when we are dining out with friends, taking the last olive feels like such a big deal.
Imagine you go to a friend’s birthday party. The appetizers are luscious: there’s a lovely spread of cheese and fruit; dishes of gherkins, kalamata olives, and tapenades; and lots of tiny little crostini. You walk around the room talking to old friends, and the wine is flowing. At some point, you wander into the kitchen and notice the delicious-looking four-decker Red Velvet cake (your personal favorite). As you chitchat with the other guests, you can’t stop thinking about that mouthwatering cake. All you really want to do is abscond with the entire thing, eat as much as you can in the laundry room without anyone knowing, and blame the dog if anyone asks. But what do you do? You balance your own desire with the desires of your friends, and you end up with only a medium-sized slice.
Recently, I was in an analogous situation with two of my colleagues and friends, Jiwoong Shin and Nina Mazar. If you’ve ever been to a sushi restaurant with friends, you know that as the California rolls and sashimi pieces on the plate in the middle of the table start to dwindle, the people sitting around it gradually become shyer about popping them into their mouths. At the end of our meal, there was one lonely spicy tuna left, and none of us seemed to be willing to put it out of its misery. When the waitress came to bring us the check and take away the plate with the lone sushi, I asked her how often people leave a single piece at the end of the meal. “Oh,” she said, “I find one extra piece left almost every time. I think it is even more common than people finishing all their sushi.”
Now I have eaten a lot of sushi in my life, and I can’t remember a time either when I was dining alone or when I got my own personal portion of sushi when I left anything on the plate. Somehow, when it’s just me who’s eating, I always manage to finish it all. But when the sushi is served in a large plate in the middle of the table, it just feels like taking the last one would be, well, a bit déclassé. “I really can’t eat any more,” I might say to my friends. “Go ahead. You take it.”
What is this sushi magic? Simply put, the communal plate transforms the food into a shared resource, and once something is part of the social good, it leads us into the realm of social norms, and with that the rules for sharing with others.
BACK TO OUR experiments, the next question we wanted to examine was whether the pattern of demand that we observed in the experiments was really due to the change from some payment to no payment. Or would it also happen when we discount prices of candies to anything above zero? According to the theory of social norms, this odd behavior of demand should manifest itself only when the price drops to zero—because only when price is not a part of an exchange do we start thinking about social consequences of our actions. Uri, Ernan, and I decided to take a closer look at this hypothesis in our next experiment.
