Economics: From “Dismal Science” to Dismal Home?
I nearly drove off the road when I heard this NPR story yesterday: “Allowance Economics: Candy, Taxes And Potty Training.” Please take a listen or a read.
In the piece, an Australia economics professor who is “an expert in incentives” decided to practice his “dismal science” (as they call it) at home with his family and children.
As they say on the interwebs, hilarity ensued.
Part one of the tale begins:
So when the time came to potty train his daughter, B., he designed what seemed like an economically rational incentive: B. would receive a jelly bean every time she went to the toilet.
Once the new policy was in place, B. suddenly had to go to the toilet really, really often.
This illustrates the point that Daniel Pink makes in his excellent book Drive: The Surprising Truth About What Motivates Us. There's a great TED video of him here, if you haven't seen it.
Incentives work — but there are often side effects and dysfunctions that people don't want. The viewpoint of those who push incentives is simplistic – if you want more of something (like sales) then pay people more for that activity. If you want less of something (like injuries in a factory) you punish them. I doubt fining people for injuries ever led to anything other than people not reporting injuries, as Dr. Deming famously wrote about.
So, the genius professor pays his daughter a reward to use the toilet — she was apparently running in there every five minutes. The incentive worked, but it was dysfunctional.
You'd think the professor would have learned his lesson, but nooooooooooooooo:
A few years later, B.'s younger brother needed to be potty trained. And Gans decided to expand the incentive system: Every time B. helped her brother go to the bathroom, she would get a treat.
“I realized that the more that goes in, the more comes out,” says B., who is now 11. “So I was just feeding my brother buckets and buckets of water.”
“It didn't really work out too well,” Gans says.
Now the professor has TWO children gaming the system (or just the older one was force feeding and water-boarding her brother so that he would have to pee more often.)
Didn't really work out too well, indeed!
The lesson for business or other organizations – incentives work. If you give your salesperson a quota or an incentive, they'll hit the incentive — and they'll often create dysfunction (such as gaining you unprofitable customers or by overpromising). I've heard stories of salespeople literally holding customer orders in their desk drawer, waiting to enter them at the time when the incentive payment was the highest. Or the incentives drive a “hockey stick effect” that really hurts the supply chain (the “bullwhip effect“).
But organizations often don't see how the pieces fit together, they don't think systemically — each silo suboptimizes itself and the company loses.
So how do we get people to do things? Dr. Deming would say, “substitute leadership!” Both he and Dan Pink would say the better way is to hire people who have intrinsic motivation, then don't DE-motivate them through Dilbert-esque management tactics, like arbitrary quotas and misguided incentives.
You might want to revisit my old podcast with Eric Christiansen, the CEO of a Deming-style company that eliminated sales quotas for salespeople — turned out it worked better. Yes, there is an alternative to simplistic incentives.
Do we have to offer the economics professor an incentive to not screw up the potty training of his next child? :-)