Have you ever wondered why we make certain decisions over others?
Or why do some decisions seem to come to us, while others need more thought?
The answer may lie in the way we are incentivised to act.
Incentives are the rewards or penalties that drive us towards a certain behaviour. If you want to get a donkey to cross a field you can either use a carrot or a stick.
There are two types of decision-making incentives. Extrinsic and intrinsic incentives motivate people to take action. Extrinsic incentives are external rewards that come from outside sources. These can be money, prizes, or recognition. In contrast, intrinsic incentives are internal rewards that come from within oneself. These can be personal satisfaction, enjoyment, or a sense of accomplishment.
Incentive structures play a significant role in shaping our actions. Understanding how they work can help us make better decisions.
To illustrate this concept, let me take you on a journey of a few blasts from the past. These stories will show us how incentive structures influence our decisions and how we can use them to our advantage.
1. The Power of Positive Reinforcement
In the 1920s and 1930s, Elton Mayo and his team conducted the Hawthorne Studies (1) at Western Electric’s Hawthorne Works in Chicago.
They discovered that positive reinforcement, such as the attention and monitoring workers received from researchers, led to an increase in motivation and productivity.
This finding had a significant impact on management, highlighting the importance of treating employees as individuals and recognising their needs and motivations.
The researchers continued their experiments, introducing changes such as shorter work hours and more rest breaks, which resulted in increased productivity due to the positive reinforcement workers received.
“The desire to stand well with one’s fellows, the so-called human instinct of association, easily outweighs the merely individual interest and the logic of reasoning upon which so many spurious principles of management are based.”
Elton Mayo
Overall, the Hawthorne Studies demonstrated the power of positive reinforcement in influencing behaviour and decision-making in the workplace.
2. The Threat of Negative Consequences
During the Cuban Missile Crisis (2) of 1962, tensions were high between the United States and the Soviet Union. The US found out that the Soviet Union was building missile sites in Cuba, which posed a threat to the US.
The US President at the time, John F. Kennedy, had to decide how to respond to this threat without starting a war. Kennedy was given several options, including using military force or diplomacy.
Yet, he chose to impose a naval blockade around Cuba, which prevented further missile shipments and limited the chance of war.
Kennedy was influenced by the possible negative consequences, such as a nuclear war, that could result from his decisions. He considered the potential outcomes before making his decision.
The Cuban Missile Crisis shows how the threat of negative consequences can impact decision-making.
“We will not prematurely or unnecessarily risk the costs of a worldwide nuclear war in which even the fruits of victory would be ashes in our mouth – but neither shall we shrink from that risk any time it must be faced.”
John F. Kennedy
Organisations can use incentives to encourage desired behaviour and deter unwanted actions. By designing a system of rewards and punishments that aligns with their goals and values, they can motivate individuals to act accordingly.
The threat of negative consequences can be an effective way to promote good behaviour and discourage bad behaviour.
3. The Value of Delayed Gratification
In the 1960s, a psychologist named Walter Mischel conducted an experiment called “The Marshmallow Test.” (3)
In this experiment, children were given a choice between a small or large reward. They could either have one marshmallow immediately or two marshmallows if they waited without eating the marshmallow after some time. The study found that children who were able to delay gratification and wait for the larger reward had better outcomes later in life.
“Self-control is crucial for the successful pursuit of long-term goals. It is equally essential for developing the self-restraint and empathy needed to build caring and mutually supportive relationships.”
Walter Mischel
This idea of delaying gratification can be seen in everyday life. I know that I need to send out the Decide Newsletter every Wednesday. It’s a goal of mine that I’m trying to build into a habit, so far so good, 5/5 since the 1st of March. I could choose to procrastinate and do things that are more immediately enjoyable, like watching Netflix. But, if I choose to write my newsletters instead, I have a better chance of getting them published and sent on a Wednesday. This will benefit me in the long run by building Decisions into something I can be proud of.
Instead of giving a small reward for completing a task quickly, a larger reward could be given for completing the task over a longer time. By rewarding delayed gratification, individuals are motivated to make decisions that will benefit them in the future.
Delayed gratification is an important concept that has been proven to lead to better outcomes later in life.
Don’t seek immediate pleasure.
If you apply delayed gratification to your decisions, your future self will be so thankful.
Now what?
Incentive structures are all around us, and they can have a significant impact on our behaviour. Whether it’s positive reinforcement, the threat of negative consequences or delayed gratification, incentives shape the decisions we make.
Understanding how incentive structures work can help us make better choices. By creating positive incentives for behaviours we want to see more of, we can motivate ourselves and others to achieve our goals. We can also recognise when negative incentives are influencing our decisions and take steps to overcome them.
Remember, the incentives that drive our behaviour are not always obvious, and they can be influenced by a variety of tangible or intangible factors. By paying attention to our own decision-making processes while appreciating the role of incentives, we can make more informed decisions.
Enjoy the rest of your Wednesday, and I’ll see you next week.
Ty
P.S. Say hey on Twitter and if you have a moment I would love your feedback on this volume, you can leave a comment here.
