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Impact of financial incentives

Interesting article in the Guardian:

Financial incentives have also been found to crowd out public spirit in settings less fateful than those involving nuclear waste. Each year, on a designated "donation day", Israeli high school students go door-to-door to solicit donations for worthy causes – cancer research, aid to disabled children, and so on. Two economists did an experiment to determine the effect of financial incentives on the students' motivations.

They divided the students into three groups. One group was given a brief motivational speech about the importance of the cause and sent on its way. The second and third groups were given the same speech but also offered a monetary reward based on the amount they collected – 1% and 10%, respectively. The rewards would not be deducted from the charitable donations; they would come from a separate source.

Which group of students do you think raised the most money? If you guessed the unpaid group, you are right. The unpaid students collected 55% more in donations than those who were offered a 1% commission. Those who were offered 10% did considerably better than the 1% group, but less well than the students who were not paid at all. (The unpaid volunteers collected 9% more than those on the high commission.)

What's the moral of the story? The authors of the study conclude that, if you're going to use financial incentives to motivate people, you should either "pay enough or don't pay at all". While it may be true that paying enough will get you what you want, that's not all this story tells us.

Paying students to do a good deed changed the nature of the activity. Going door-to-door collecting funds for charity was now less about performing a civic duty and more about earning a commission. The financial incentive transformed a public-spirited activity into a job for pay. As with the Swiss villagers, so with the Israeli students: the introduction of market norms displaced, or at least dampened, their moral and civic commitment.
 
Interesting find, BBW. What I find particularly interesting is the idea that the group that did the best did so out of a sense of goodness towards helping their fellow man. Makes you wonder whether or not it would be possible to build off of that and have at least some sort of passable standard of living in communities created by people who simply want to do good by each other.
 

DominiConnor

Quant Headhunter
Getting economic theory from the Guardian is like getting biology from evangelicals.

We're actually in an area that I've spent some effort in understanding, it's called agency theory, been a respectable part of mainstream economics since before nearly all here were born, apparently it's news to the Guardian.

This falls so far below any statistical validity that I would have guessed with no other input that this was from the Guardian or Fox news, ideological opposites, innumerate twins.

The first factor that seems unaccounted for is score keeping, it's both intuitive and well documented that people will try harder when there is a score, and the first group seem not to have access to that.

Second there is this nonsense about "nuclear waste", most people see that mismanagement of this has terribly bad consequences (except Japanese of course), so comparing it to commisions is just silly, there is that matter of scale.

Third, a proper experiment, the stuff real-economists do would see what happens if you change the incentive for the same people.

Scale matters in this shit, I've done face to face collecting and even when I was student the cash levels never impressed me, so without knowing what the 1% and 10% in cash were it's not easy to work out anything useful.

I have a nearly foolproof way of detecting bad science journalism, even if it is in a field of which I am wholly incompetent.

The simple test is nationality, if the article mentions where the scientists are from, either the scientists or the reporter are hyping because of exactly the sort of agency effect I study. If you were to believe the UK press all science happens in the UK, Israel and the US (in that order), literally no science happens anywhere else at all ever.
German science after WWII ? no.
French or Italian scientists ? apparently there are none, or at least they never discover anything.
Japan ? Occasional clips of dodgy robots, but no science.
Australia, Japan or anywhere bordering the Pacific ? Aside from kooky environmentalists, no.
CERN is apparently 1/2 British scientists, 1/3 Israeli and the rest are Americans.
 
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