Top Banker: how banking taught us the wrong lesson about financial incentives

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"Motivation does not come from financial incentives alone. Again, the financial sector has done us all a disservice in promoting the belief that massive financial compensation is necessary to motivate individuals
".

So writes Mervyn King, Chairman of the bank of England. about what might levers we might pull to drive up economic activity.

It's worth cutting this out and keeping it.

If you think people only do stuff for money – or even mostly do stuff for money – you'd be wrong. 

There are lots of other sorts of reward and disincentives – not least is the social stuff that we go on about [people doing what other people do, for instance]. 

Put it this way: financial incentives presume that individuals are primarily financial optimisers, acting independently in their own interest. Paul Ormerod makes this point really well in his new book - "incentives" tend to be part of an "individualist" or "I" model of behaviour.

Some people are focused on financial incentives all the time [we call them things like "greedy mothers"], all of us can be taught to be that way [ditto] but…and there's quite lot of evidence that financial incentives can overwhelm other intrinsic motivations in certain circumstances [prosocial behaviour can actually reduce when you pay volunteers].

But – it's far from clear that financial incentives always have a positive impact in shaping behaviour in the desired direction, be it in personal health, charitable activity or criminal activity. Sometimes they actually have a negative effect [as above] becoming the reason why you continue to do something.

So if you're looking to change behaviour, please be careful with financial incentives: they don't work like they say they do [not least because we're not like they say we are] and they can actually work against the desired outcome.

Look for the other – often [pro]social – motivations.

And as we ponder our own lives, it's worth listening to wise people like Sir Ken Robinson and Hugh Macleod who remind us to focus on our passions and our talents and let the money follow those two.

Whatever it is you do, don't just do it for the money…

 

5 Comments

  1. Coach
    August 16, 2012

    Well written, direct, succinct…thank you!

  2. BrianSJ
    August 22, 2012

    The corollary is that the financial sector has done us the bigger disservice of promoting ‘snakes in suits’ who do respond to financial incentives.

  3. Grimbold
    August 22, 2012

    Beautifully, and economically (sic) put. Thanks Mark.
    Resonated with a Douglas Adams quote I read about 10 minutes ago,
    “This planet has – or rather had – a problem, which was this: most of the people living on it were unhappy for pretty much most of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small green pieces of paper, which is odd because on the whole it wasn’t the small green pieces of paper that were unhappy.” [Douglas Adams.The Hitchhiker’s Guide to the Galaxy. Pan Macmillan. 1979]

  4. Alexander Berger
    August 28, 2012

    Good point, but you ahev to admit that people do seem to do some very extreme (Even self harmful things) when motivated by money.
    I just read the Big Short by Michael Lewis and as he said, a lot of the bad things bankers have done seem to be due to improper compensation setups.
    (Review Here: http://alexanderberger.me/post/28216200083/the-big-short)
    That dies seem to be a case of money being a very strong motivating factor. No?

  5. Harrow Dupont
    March 7, 2013

    I think this is just all about the character of each and everyone of us. There are people who are motivated positively for monetary reasons, but there are those also who are intrinsically motivated.