Monday, May 31, 2010

People Respond to Incentives....

...but which incentives?

In economics class, we teach that people respond to incentives. Then we frequently add that sometimes incentives don't work. The truth is when an incentive (negative or positive) doesn't work it usually means it was the "wrong" incentive to motivate a particular individual. Sometimes it's not about money. It can be other "non-economic" - or more correctly "non-monetary" - factors that provide incentive. I often use the term "psychic income" to explain some of these factors. But I have been looking for something that could provide a better explanation.

Barry Ritholz at The Big Picture posted this very interesting video animation on this topic, which can help. The video has taken a presentation by Dan Pink, the author of Drive, (which I have added to my carousel, at left) and edited and illustrated it. It's short. It's interesting. And while not complete, it provides a good platform. (If you're interested in a longer version of the talk - 41 minutes - without the animation, you can find it here.)

On Barry's blog, many of the comments were insightful and/or useful. (That's where I found the link to the longer version.) The animated version doesn't address negative incentives. Nor does it include other positive incentives such as recognition and status - both of which can be powerful positive incentives.

I recommend both the short version (for possible classroom use) and the long version (for self-edification). I would be interested in your thoughts, as well.

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