File:Behavioral Economics of Intrinsic Motivation Remastered

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ReRecorded for poor Audio in the first one!

One of the most basic questions I hear from managers is: How can I do a better job of motivating my team? Should you use a bigger carrot or a sharper stick?

In Dan Pink's new book Drive and his latest TED talk he makes the distinction between extrinsic motivators like strict schedules and large bonuses and intrinsic motivators like autonomy, mastery, and purpose. He makes the case that employees performing jobs that require more than just basic cognition, are less productive when motivated by an extrinsic source than an intrinsic source. What I find most interesting about his talk are the behavioral economics behind this management style.

To understand the behavioral economics behind intrinsic motivation we must first understand that the call to move to intrinsic motivators is really a call to move the employee-employer interaction from a market relationship to a social relationship. Let's look at these two types of relationships as defined by Dan Ariely in his book "Predictably Irrational".

A market relationship is usually defined by the exchange of monetary currency for a product or service. In the employer-employee relationship this has been the structure for motivating people to work throughout the 19th and 20th century. The employee trades her or his time for compensation. When managers want their employees to preform better they either offer them more salary, more options, more benefits, or the thought has been they can motivate them to work harder with a stricter schedule, less benefits, or even threatening them with losing their job.

A social relationship is much different. It is defined as the exchange of an intangible for a product or service. In his book, "Predictably Irrational", Dan Ariely illustrates the difference between a market relationship and a social relationship with a great anecdotal story. Imagine you are at your in-laws house for thanksgiving. At the end of the fantastic meal you walk over to your mother-in-law and instead of giving her the customary social payment of a big hug and thank you, you pull out your wallet and ask her how much she wants for the meal. Here is where the behavioral economics get interesting. Even if you were to offer her $1000 for the meal, a meal that only cost her only a couple hundred dollars and a few hours of her time, she and everyone else at the table will be offended because they will feel you cheapened the day.

Why? Well behavioral economics show us that the intangibles like love, gratitude, trust, and community that we receive in a social exchange are difficult to put a value on, so difficult in fact, that we can't calculate them and value them as priceless. By offering the $1000 to your mother in law for the Thanksgiving dinner you are putting a cheap value on something that is priceless in her mind. This inequity is caused by trying to blend a social exchange with a market exchange and it is an important lesson for managers who are moving to a management style with greater intrinsic motivators.

Managers must understand that while intrinsic motivation is better and far more economical at motivating employees to be creative, productive, and loyal; it is also creates a long term commitment of honoring that social relationship. The reason intrinsic motivation works so well is that in addition to market capital it uses social capital to dramatically increase the employees valuation of their time. Employees feel they are getting the better end of the bargain and are willing to work harder.

The potential problem is that intrinsic motivators create employee social expectations. Just like you couldn't pay your mother-in-law a $1000 for your Thanksgiving dinner, trying to move a social relationship created by the use of intrinsic motivators back to a market relationship will cause great turmoil in the employee- employer relationship. The moment a manager can't afford to give the time, trust, or freedom needed for the social exchange the employee will devalue their time to the market exchange rate, feel ripped off, frustrated, and will most likely quit.

Don't get me wrong! I think using intrinsic motivators are an excellent idea and I think Dan Pink and Dan Ariely are really onto something here, but managers need to understand what they are getting into and be willing to make the long term commitment and investment in meeting the social expectations that come with intrinsic motivation. Thanks for watching and I look forward to your feedback!