David Davis MP rats on the bankers and their bonuses!

Ever since I learned about Pavlov and his slavering dogs I have always been fascinated by experiments with animals designed to show human behaviour.  Mind you, I'm never very sure quite how useful or even accurate they are and David Davis MP adds to my doubts with an intriguing post at The Coffee House.

He quotes from a book which I have never read by Dan Ariely called The Upside of Irrationality.  Apparently, Mr. Ariely has studied some animal experiments, rats, to be precise, carried out a century ago which indicate that, paradoxically, the bigger the bonus, or 'incentive', the worse the outcome!

He cites a century-old experiment in which rats were placed in a cage with two pathways. One led to a reward, the other to a device which gave the rats an electric shock. The aim of the experiment was to see how quickly the rats learned which path to take.

As an added twist, the scientists varied the size of the electric shock. Some rats who took the wrong pathway received a low level shock, which produced a tickling sensation. Others received a medium shock, while a third group received a high level shock, which was almost fatal.

The results seem eminently predictable.  The higher the electric shock received, the greater the motivation there is for the rat to learn the rules of the cage, and therefore those rats who receive the strongest shock are the quickest to learn which pathway to take out of the cage.  It is obvious.
But wrong.

The rats which received the biggest shock — in effect the most severe punishment for making a poor decision — were slower to figure out which pathway was right than all the other rats. In other words, the group with the biggest incentive to succeed were the least successful. 

Heh!  But that's rats, you might mutter, what about us intelligent humans?  Oh dear:

In a different experiment, this time conducted in India, Ariely offered volunteers bonuses for winning games which tested their reasoning skills and cognitive ability. The volunteers were divided into three groups. For the first group, the bonus on offer was equivalent to a day’s pay for the average local worker. Winners in the second group received a bonus worth two weeks’ pay, and in the third group, 5 months’ pay.

The results would make bankers quiver.

You would expect those with the most to gain to be the most motivated and perform best. In fact, those in line for the biggest bonus performed more slowly and less successfully than those chasing more modest windfalls.

Instinctively we think large monetary incentives must encourage individuals to go the extra mile. But Ariely draws our attention to the psychology of bonuses and the dangers huge rewards can create. The frantic pursuit of riches can heighten feelings of workplace stress and encourage recklessness and poor decision making.

Unsurprisingly the banks don’t want to hear this.

Well, I can't say I blame them, I mean who wants to be compared to a bunch of rats? Oh, you mean they already are!  Well that may be because the rest of us have at last cottened on to the fact that 'banker rats' collect their rewards irrespective of any outcome at the business they are supposed to serve.

 

Comments

[Dom]

Hmmmm. I know you have often pointed out that scientists sometimes fudge their data (at least you point this out when the subject is climate change). You might consider the possibility that Dan Ariely has done the same. It just doesn't wash with me. (BTW, I've never worked in Bahavorial Psychology, but that is what my degree is in, and I've done my share of research). As a general rule, mistrust EVERYTHING Psychologists say.

The first study makes sense, but it is not about incentives. It's called punishment, and avoidance behavior. Psychologists don't bother with the subject anymore. Too many confusing factors come into it.

[David Duff]

I take your point, Dom, which is why I was careful to insert "Mind you, I'm never very sure quite how useful or even accurate they are". As for psychologists and their ilk, I think our knowledge of the human mind is about level with the knowledge of physiology held by a medieval leecher!

[dearieme]

It would be rather odd if there weren't some optimal level of incentive, and therefore very natural that it's possible to offer too great an incentive. Evidence: (i) introspection, and (ii) knocking about a bit.

[David Duff]

"Evidence: (i) introspection, and (ii) knocking about a bit."

Can you clarify that a bit, DM?

[Andra]

the group with the biggest incentive to succeed were the least successful.

Not to be pedantic but I would have thought that should be "WAS the least successful."

I understand these are not your words, David, but I would dearly love some erudite clarification here. DM perhaps?

[Dom]

I don''t know about Australians, but the English don't seem to be consistent about making subject and verb agree when the subject is a collective noun. I sometimes read in a blog, "The team are ..." and then later in the same post "The team is ...". There must be a rule, but I can't see it.

DD, can you explain it?

[David Duff]

Yes, Dom, I can explain it. Most bloggers are semi-educated twerps like me who are dimly aware of grammatical transgressions but too idle to proof read their own words. That's why I keep DM around the place (well, he's very cheap, you know) to, er, tidy up and administer the occasional reprimand, as it were!

To be more serious, I find it exceedingly difficult to proof read myself. I do actually check my text as I publish, occasionally several times if it is a long post but, dammit, re-reading it a day or two later I spot the howlers. Mea culpa and all that!