So, imagine that you are a 24-year old guy, you're going on a date.
You've gone to dinner , you had a couple of drinks.
You're walking with your potential date, potential long term date to her apartment.
You walk up the steps and as you lean to kiss her, hoping for a passionate
goodnight kiss. You tell her, interesting, interestingly I
spent $124 on the date so far. How will that date works?
I mean, would you actually get the goodnight passionate kiss?
I'm not proposing this experiment. I'm not saying you should try it I think
its enough to think about it and to probably realize that this is not going to
work very well. And its kind of interesting to ask why,
why will it not work very well. After all, everybody knows what the prices
are on the menu and how much the drinks are.
So you've said something that had no informational benefit.
You didn't say anything new, but you actually have said something.
Before that you were on a date, now you're kind of in a prostitution exchange, money
for, for sex. And it's not by providing any information.
It's actually mentioning money, or think about another example.
Imagine I asked you, invited you for dinner at my house.
And you came to dinner and you were going spend $40 on a bottle of wine.
But you don't know what wine I would like, red, white, rose.
So you say to yourself that you might spend $40 on a bottle of wine.
But I might be able to buy wine I like even more for $20.
So you come to my house and say, Dan, thanks a lot for inviting me for dinner.
But not knowing what wine you really like and worrying that I'll waste money on wine
you don't like so much. Here is $30, go ahead and buy the best
wine that you can with $30. This way, presumably, you will save some
money and I would get better wine. Is that a good strategy?
Economically, yes, but would it in any way help our friendship?
Not so much. Now, you can see all kind of examples in
which adding money to the equation actually make things worst.
George Bernard Shaw has this joke where he says he goes to a woman and he says madam
would you sleep with me for money? And the woman looks at him and says, of
course not, what do you think, I'm a prostitute?
He looks at her again and he says, what about for a million dollars?
She says you know what, for a million dollars, I'll sleep with you.
And he comes back he said okay now that we've established you're a prostitute,
let's renegotiate the price. Now, here's one more example.
Imagine if my car broke and I needed somebody to help me change a tire.
And I came to you and I say look, would you please help me change a tire on my
car? Ask yourself how likely would you be to
help me. What if instead, they came to you and they
say I need help changing the tire on my car.
Would you please help me? I'll give you $3 for it.
What would you say now? Would you be more likely to do it or less
likely to do it? Well here is what would happen.
Now, you could probably not tell yourself that you're doing something for the
goodness of mankind, or to help me. Instead, you would do it as a job.
You would not be able to say, gee, I get to help Dan to change a tire on his car,
plus I get $3. These two forces would not add.
They will substitute each other. And now you would say, oh, $3.
I don't work for $3. Give me 150.
We can talk. But for $3, I don't work.
And the idea is that once that financial motivation comes in, the social
motivation, feeling good about yourself, good about your action, actually goes
away. The basic idea here is that we live in a
continuum. There are things that are in the financial
domain, which we call market norms, where you pay people for their work.
Maybe if you work for me, you know, helping me I don't know.
Cut the lawn in my house. I don't actually have a lawn but if you,
if I had one, I could create a contract with you of how much do you get paid for a
piece of grass or per hour or per square range or something like that.
That's on one hand. On the other hand, we have marriage or
long term relationship, where we don't have this exact tradeoffs.
And the interesting thing is that we almost never live in the world that is
purely money norms. We always live somewhere in the middle.
There are very few jobs that you can write a very specific contract for how they
would play out. So most things are in the middle,
somewhere between those two. And the interesting thing is that once you
add financial incentives to the mix, you actually can make things worse off.
Like the example of adding $3 to get you to help me change a tire on my car.
So let me tell you about the couple of experiments we've done on this.
We ask people to do all kinds of things. To help us lift a sofa, to do some boring
things on a computer. And they all look the same in terms of
result. When we pay people nothing, they work hard
and they're very eager to help. We add a small amount of money to the mix.
And willingness to work goes down dramatically, we add a large amount of
money to the mix, willingness to help goes up again.
Much like in the tire example, would you help me for free?
Most likely, yes. Would you help me for $3?
Most likely, no. Would you help me for $300?
Most likely, yes. So the interesting thing is that the $3,
the small amount of money that comes in actually hurts rather than help.
And the next thing we asked is what about gifts?
As we said when we go to peoples homes for dinner, we don't give them money.
We give them something that is obscuring the money.
We can give them a gift, like a bottle of wine or chocolate or something else.
What happens when we give people a gift? So what would happen if I asked you for to
help me change a tire on my car for nothing?
For a small gift or for a large gift? Would the small gift work like money where
people would be offended or not? People are not offended.
The moment you give gifts, you stay in the social domain and not in the market
domain. And everything looks, looks better.
And then the next question was what if we gave people gifts, but we told them how
much it cost us? Here's a $0.10 chocolate bar.
Here's a $5 chocolate box. What would happen when you give a gift?
Like when you come and you give the wine but you tell the person, thank you so much
for inviting us, here's $30 bottle of wine.
What happens when the money becomes central to that transaction.
Do people care about what you gave them or what you got them to pay attention to?
Turns out it's what you got them to pay attention to.
You gave people a gift but you tell them how much it costs, it backfires again.
People are reducing their willingness to help.
Now, lots of countries have all kind of habits about when do you give gifts and
when do you give money. And particularly for weddings and
sometimes birthdays, it's acc-, it's acceptable to give money.
And money is, of course, efficient. It's a better gift, from an efficiency
perspective. If you come to my house, by the way, for
dinner giving me money's also more efficient.
But if you go to somebody's wedding, it's incredibly efficient to give the young
couple a check. And let them buy what they want.
Now, it's not that money's not efficient. It's that money is not helping nourish the
relationship. In the same way that if you came to my
house and gave me a check instead of a bottle of wine, if you go to somebody's
wedding. And you give them a check instead giving
them a gift you're not helping your relationship.
You will not become better friends tomorrow.
Now, if you think about it, it's really a continuum.
There's cash and checks, there are gift certificates.
There are registry, that people tell you what they want in advance.
All of those are more efficient than giving your own gift of what you think.
But as the efficiency grow-ups, money is more efficient than gift certificates,
gift certificates are more efficient than registries.
Or maybe the other way around but heh, so maybe it's money, registry, gift
certificates, and real gifts. As you think about the efficiency, the
efficiency goes down but the social value of these things is going up.
So we have to think about. That, that as well.
And how much of the gift is really for the person.
How much of the gift is because of what you want them to have.
And maybe then cash is ideal. And how much of it is to nourish the
relationship. By the way, this same thing also happens
in the work place. Imagine you worked for me.
And image I told you look, I can do one of two things.
I can give you a thousand dollar in cash or I can send you to a weekend to the
beach. Now you might look at and you would say
well, give me the cash. I can maybe go to a cheaper hotel in the
beach and get some new gadget. So from your perspective the cash would be
more efficient. But imagine the following question.
How would it work if a week from now, after giving you the cash, I ask you to
come late to the office? I ask you to come on the weekend, I ask
you to stay late, I ask you to do some extra work.
And how would it work if I gave you the gift, without asking you, I gave you the
gift rather than the cash. What the results basically show Is that if
you got the cash you've not build any social capital.
So if the workplace off-, officer asked you to stay on the weekend at work or late
at night or so on. You basically would say, and how much
would you pay me for that? But if the workplace gave you a gift, you
all of a sudden moved a little bit in this social realm.
Now, its a bit more like marriage. Then work for money, you feel more
obligated and the give and take between the two of you is increasing to a higher
degree. You'll be willing to do more things for
them. So the idea here is that there is this
financial norms and there's social norms. And as we move around them, we get to
sacrifice more, we get to give more, but we also get to get more.
And as you move closer to a social relationship, there's much more give and
take, and it's much less precise. Sometimes I give you a gift, sometimes I
expect something from you. It's not exactly been counting.
Now, I need to give as well, I can't just expect that, right?
It's not just something that happens. But there is some exchange.
This I think is also where social benefits in companies fit in, right?
I pay for your healthcare. I give you a gym.
I get you lunch. All of those things are not about the
financial transactions. They're about look, I really care about
you and we're going to have some reciprocation in this more social domain.
Now, imagine that you're in this range somewhere and then at some point you
switch to the financial domain. You move into the direction of the market
norms. What, what will happen?
And here is a beautiful experiments, set of experiments by Uri Gneezy and Aldo
Rustichini. And they took this daycare center.
And in a daycare center sometimes the parents were late.
And when the parents were late, what usually happens?
The school teacher looks at her watch, she looks at the parent, she looks at her
watch. She makes sure they realize that she's
watching them and noting that they're late.
They feel guilty, they apologize and they take their kid and they try to work
better. But under Uri and Aldo's supervision, this
daycare center basically introduced a fine.
If the parents were late, they would have to pay a fine.
Now, if the fine was a $1,000, the parents would probably pull the kids out and move
to a different a different daycare. But the fine was a few dollars.
Now, what happens now? Imagine you're a parent.
You're there in the office, you're working, there's an important task, you
look at the watch and you realize you have to leave now.
But now, there's a fine. What do you say?
You can say, oh, at this cost, I have something much more important.
The kindergarten can keep my kids for a few more hours, maybe until 7 in the
evening. I have more important things here to do.
And what happened? Exactly that.
All of a sudden, parents were more late. Now, here is what happened.
They kept running this event, they kept on running it.
And people became later and later and later.
Because now, there was no guilt. It was a cost.
Is it worth it, or is it not? And then, at some point, they canceled
after a few weeks. They canceled the fine, and they went back
to the, the previous system. Now, can you go back?
After you move to a market norm, something that people just do the cost and benefit
analysis, can you introduce guilt all of a sudden?
The answer is, not for awhile. Probably not until the next school year.
Now, parents were more late. Why?
Because you take guilt away. And then you took the fine away.
And now, there was just no perceived consequences for being late.
So the point here is that once we move to market norm, it're really hard to recover
from that. And here's another example to, to think
about. Imagine that you had two credit card
companies. And one credit card company told you, you
know what, we're your friends and we're helping you out.
And they send you a cookie, you know, or they, they gave you a mug or they gave you
some, some gifts. And another said, we are just a credit
card company, it's just business. Okay.
And then one day you were late paying your credit card bill.
And they were both gave you a hefty fine, which is what credit card companies do.
And you called them up. And you said, I'm really sorry I was late.
My daughter was sick, I got late to the Post Office, could you please forgive this
fine? And they both said, no.
How would you react to both of those? The first one had a social relationship
with you, or at least they claimed they had a social relationship with you.
But if now they say no. You will basically get incredibly pissed
off. And you will most likely cancel your
credit card. Because you had the relationship that was
supposed to be a social relationship. But now they tell you, you never had a
social relationship. They don't really understand you.
They're not giving you a discount. They're not willing to accept your
challenges. The other company, if they said no.
You don't get to be upset. They never promised you anything.
It was just business. There are strict rules, here it is.
So what happened? The second company people are not upset.
So when we think about it, where do we want to be in the range between market
norms and social norms? As we move as a company toward the social
norms, we can expect more from people, to forgive us more from time to time, to be
willing to accept, to do extra things, more variance less been counting, but it
also has a cost. It means that we need to actually build
the other side. We need to help, we need to be there when
something breaks so we are not just expecting social norms, we're also giving
social norms. So how do we think about this whole notion
of market norms versus social norms? In economics, there's a general way to
describe contracts. And we think of them as complete contracts
and incomplete contracts. And complete contracts are things that we
can specify exactly what you would do and what you would get.
And the reality is that we try to make contracts with people always complete,
exactly about what will happen, but the reality is that it's incredibly difficult
to write complete contracts. So now the question is, what is better, to
write partially complete contracts or to try and write incomplete contracts?
Contracts that general and me specified. Something like a marriage.
You don't sit there and write the whole contract of what you will do and what they
will do. You basically say, we will take care of
each other. We will try to make it so that in the long
term, things would work out. Sometimes you will do more, sometimes I
will do more. I will, not sure what the circumstances of
our lives will be, but we will adjust and change accordingly.
And the idea is that I think we're thriving too much for the complete
contracts. Because as we try to write everything in
the contract, the things that govern the contract, the social norm above it,
basically go away. If I write a specific contract with you,
if something new comes and something different, you're going to adhere to the
letter of the law and not to the spirit of the law.
But as we move to more general contracts. With handshakes and general agreement and
less specific things, we basically agree to adhere to the spirit of the law.
And not to the letter of the law and sometimes it's much better.
Now, I actually think it's quite a shame we're taking all of these general
contracts and try to make them more specific.
Because we can't make them really specific enough and by doing this, we're actually
killing them. I'll give you kind of one, one example
that has been I think resonates with me a lot.
Imagine a janitor in a hospital and imagine this janitor has a very specific
rule about what they're suppose to do, pick the trash and mop and do and do some
things. What happened if one day a patient is
falling on the ground from their bed or somebody else needs help in finding out
their relatives? Berry Schwartz gives this example and he
says, of course, you would not want this individual to adhere to the letter of the
law. You would want to adhere to the spirit of
the law. But what happens if you get this person to
have a very, very detailed job description?
Are you losing, are you basically losing the potential that you would go beyond his
job? By restricting the job and making it
incredibly specific, are you focusing on doing only what's there and not what's
really important? So I think the interesting question is,
what kind of contracts do we want? And what kind of contracts would get
people to be happier and more motivated and be willing to do more?
Both in the professional domain and in a private domain.
And as a last, last story on this. There was a woman who put an ad in
Craigslist. And she said she's beautiful and qualified
and wonderful in all kinds of ways. And she usually sees very beautiful women
like her dating men who make at least $500,000 a year.
This was in New York City before the financial crisis.
So she said look, I'm as beautiful as these women who are dating men who make
$500,000 a year or more. But I personally have been stuck, I got
into the $250,000 barrier. I have not been able to break that
barrier. I can't date men, I can't find, seem to
find men who are making more than that. And she asked for advice and suggestions
of how to go about it. Now, the reality is that it's true,
beautiful woman marry wealthier guys. That's just kind of the realization of the
market. But she said it in a very explicit way.
And you can ask yourself, what does it do to you if, if the contract is so explicit,
I'm beautiful, I'm getting money, kind of makes the whole thing dirty.
Imagine you made the contract. Imagine you made enough money to satisfy
her. And she was beautiful enough in your mind,
and you got together. How would this relationship look like?
What would happen on the first night she doesn't want to have sex or doesn't want
to, to be a good, a good partner, right? It's a really strange transaction of
saying beauty for money. And indeed, one guy wrote her back.
And he said, look, I'm wealthy enough. I make more than the required amount.
And you seem very beautiful. And I think this is a reasonable deal.
But, he said, my assets, which is money, is likely to appreciate over time.
And your assets, which is beauty, is likely to depreciate over time.
And under those conditions, he said, I prefer to lease than to buy.
And you can see how putting out an offer that is, has a social component of living
together, but putting it in terms of market norms.
Actually invites a very different way of thinking about the relations and think
about her and its very unlikely to work out.
So, think about your relationships, think about where they lie on this range for
market norms to social norms. And where would they be ideally, both the
social relationships, business relationships and so on.