As any good economist will tell you, people respond to incentives. But as a behavioral psychologist will also point out, an individual’s response to incentives may be influenced as much by the context in which the incentive is presented as by what’s actually being offered. For example, people are generally more persuaded by the thought of losing something than the thought of gaining that exact same thing. In the arena of loss versus gain, what is the same economically becomes very different psychologically.
Timing can provide an important context, too. Studies have shown our tendency to live for today at the expense of tomorrow. Offered a choice between $20 today and $21 tomorrow, most people will take the money now. Change the context, though—$20 seven days from now or $21 in eight days—and more people will wait the extra day for the bigger reward and, in doing so, demonstrate how fascinatingly inconsistent human decisions and behavior can sometimes be.
So when it comes to using incentives to influence behaviors, the contextual framing can matter an awful lot. According to one study it appears that a seemingly small and inconsequential change, such as separating rewards into different categories, can increase people’s motivation to acquire them—even if the categories are meaningless.
Behavioral scientists Scott Wiltermuth and Francesca Gino believed that people’s motivation to achieve a reward could be affected by the category in which the reward was placed. In one of their studies, participants were asked to complete a simple ten-minute writing task in exchange for a reward. The possible rewards consisted of a mix of inexpensive items displayed in two large plastic containers from which participants could choose one reward. But all participants were told that if they (voluntarily) chose to complete a second 10-minute task—therefore working a total of 20 minutes—they could choose a second item from the available rewards.
Unbeknownst to the participants, they had been randomly assigned to one of two groups, and there was one important difference in the information given to the two groups. The first group was told that if they completed the additional writing task, they could take their second reward from any of the containers. In contrast, the second group was told that if they completed the additional task, the two rewards they selected would have to come from different containers, because the containers held “two categories of rewards.”
Remarkably, despite the fact that all the participants clearly saw that the two containers contained the same mix of items, those in the second group were three times more motivated to complete the additional task than were those in the first group. Perhaps even more surprising was the fact that the enjoyment of the writing tasks was significantly higher among the participants who were told they would be choosing from two categories rather than one.
So why did the prospect of receiving rewards from two categories energize people to a greater extent than did the prospect of receiving the same number and value of rewards from only one category? And why were they happier too?
According to Wiltermuth and Gino, dividing the rewards into categories (even meaningless ones) made people feel that they would be “losing out” on something if they didn’t complete the additional task. Thus, when seeking to influence people to complete tasks by offering incentives or rewards, separating those incentives or rewards into different categories can, without increasing their economic value, increase their psychological value because of people’s aversion to missing out on something.
These findings could provide useful insights to anyone who has an interest in, or a responsibility for, motivating others through the use of incentives. For example, a sales manager tasked with motivating employees through a new sales incentive or bonus program could optimize the program by offering rewards that fall into two distinct categories and then allowing his team access to the second category of rewards only after they have earned one from the first. Not only would such an arrangement encourage employees to expend the effort to attain both types of rewards, it might even lead them to enjoy those efforts more in the bargain.
This recategorization effect could even help those in financial difficulties. People with multiple debts typically have a tendency to pay off their smaller debts first because it understandably provides a sense of progress toward financial freedom. Of course doing so often makes matters worse because the larger debts are simply accumulating more interest, deepening the pool of debt. Banks and financial houses could help by offering to split larger debts into two smaller ones, say Debt A and Debt B, which may not financially reduce the debtor’s burden, but would at least psychologically reduce it. This small change, which would focus people’s attention on a larger, more costly debt, could make for a big difference in reducing interest paid.