An internal reward seem small by comparison but if all we experiences bring internal rewards, then those rewards seem much more important. But, motivation isn’t the whole story. Sometimes monetary incentives backfire in a way that can’t easily be explained in terms of diminished motivation.

Incentives might reduce public support

In the early 1990s the Swiss Government was considering two small communities as potential storage sites for low-level waste from their nuclear power plants. At that time nuclear power was relatively popular in Switzerland as it was seen as a common good that benefited the country as a whole.

The households in those two communities were surveyed about whether they would support or oppose a nuclear waste storage site in their community. I want to emphasize that this isn’t a laboratory experiment conducted with college students. The researchers targeted the specific communities that were likely to be most affected by the store site in the interview more than two thirds of all households in those communities.

Perhaps surprisingly slightly more than 50% of the people interviewed actually supported building a storage site. They saw the storage site for something relatively safe something that might have other benefits for their community and something connected to the greater social good of nuclear power. But then the researchers added an economic incentive.

People were asked whether they would support or oppose a storage site if the Swiss Parliament offered every resident in their community a yearly payment equivalent to several thousand US dollars. When that incentive was added, only 25% of people supported the storage site. That incentive reduced people’s willingness to support the public good rather dramatically.

Incentives disrupt internal motivation

It’s hard to dismiss this result, this was a real issue into real communities almost every one of those communities was surveyed and the monetary incentive was substantial, equivalent of thousands of dollars, but the incentive still backfired. About 1/4 of the community switch from favoring the storage site to opposing the storage site because of that incentive.

Why did support drop so dramatically? One explanation is that the incentives disrupted some internal motivation – the essence of charity like in the stopwatch images discussed. But this situation is different, here undermining occurs while the external incentive is present. The external incentive seems to make the outcome less desirable rather than more. We need an alternative explanation.

Think for a moment about the logic of this specific incentive, it’s framed as an offer
if there is a nuclear storage site in your community then you will receive thousands of dollars yearly. Now, when someone offers you money, particularly when they offer you a lot of money you don’t think that they are doing it out of the goodness of their heart.

Incentives and economic transactions since signals about other people’s motivations. If the government offers you money they must want you to sacrifice something return and what might you be sacrificing of a nuclear storage site is built in your community, your health your children’s health, the local environment. When we bring those potential disadvantages to mind the incentive backfires.

Actions without incentives

Incentives can also signal us that someone doesn’t trust us to make the right decision. Paying children to avoid a desirable pet behavior safe playing video games excessively sends a very strong signal, mainly video games are really fun. there’s a somewhat paradoxical prediction here: you shouldn’t pay kids to avoid video games in part because that sends the wrong social signal.

What might work much better is paying kids to play video games, make the games as warlike as possible so that their performance in the game earns them small amounts of money and that money may undermine their internal motivation for the games. But, so far I talked about how the presence of an incentive sends social signals but the opposite is true as well.

When people take actions without incentives it also sends social signals to themselves and to others. In 1914 the explorer Ernest Shackleton was assembling a crew for a voyage to Antarctica. His ambitious goal was the first crossing of the continent which would be a hazardous task to say the least.

Although no one has been able to confirm the story legend has it that he placed the following advertisement in a newspaper: “Men wanted for hazardous journey. Small wages, bitter cold long months of complete darkness, constant danger. Safe return doubtful. Honor and recognition in case of success.”

We use incentives

And the story continues, he received some 5,000 applications for joining his crew. When we act without external incentives it says something about us. When we sacrifice ourselves we take risks without any obvious external cause then we signal that we are motivated by internal causes. We show others that we are not the sort of person who can be bought.

We’re acting because of our principles, our desire to help others our honor. If reward undermining is a real phenomenon we’re left with a puzzle: when and how do incentives work? This isn’t just a question for economists and policymakers. We all use incentives.

We use incentives when we reward our children for good behavior, when we help and support of friends, when we encourage employees or volunteers in our organizations and even when we reward ourselves for our own accomplishments.