The Irrational Bundle

1. Excessive financial incentives can hinder performance

When the incentive level is very high, it can command too much attention and thereby distract the person's mind with thoughts about the reward.

Pressure of high stakes. When faced with extremely large bonuses or rewards, individuals often experience heightened stress and anxiety, leading to decreased performance. This phenomenon, known as "choking under pressure," was demonstrated in experiments conducted in India and at MIT. Participants offered very large bonuses for completing tasks performed worse than those offered moderate or low bonuses.

Optimal motivation level. The relationship between incentives and performance follows an inverse U-shaped curve, similar to the Yerkes-Dodson law in psychology. This means that:

• Low incentives result in low motivation and poor performance
• Moderate incentives lead to optimal performance
• Extremely high incentives cause overmotivation, stress, and diminished performance

Implications for compensation. These findings suggest that traditional high-bonus structures in industries like finance may be counterproductive. Companies should consider alternative compensation models, such as:

• Smaller, more frequent bonuses
• Performance-based pay averaged over longer periods
• Emphasizing non-monetary rewards and job satisfaction

2. Meaning in work is crucial for motivation and productivity

If you're a manager who really wants to demotivate your employees, destroy their work in front of their eyes. Or, if you want to be a little subtler about it, just ignore them and their efforts.

The power of purpose. Employees who find meaning in their work are significantly more motivated and productive. This was demonstrated in experiments involving Lego Bionicles and letter-searching tasks. Participants who believed their work had purpose or was acknowledged performed better and persisted longer than those whose work was ignored or immediately destroyed.

Creating meaningful work environments. Managers can enhance job satisfaction and productivity by:

• Clearly communicating the impact and importance of employees' work
• Providing regular feedback and recognition
• Allowing employees to see the end results of their efforts
• Fostering a sense of ownership and pride in one's work

Small gestures, big impact. Even minor acknowledgments of effort can dramatically improve motivation. In the letter-searching experiment, simply looking at completed work before filing it away led to significantly higher productivity compared to immediately shredding or ignoring the work.

3. Acknowledging employees' efforts significantly boosts morale

It appeared that finding pairs of letters can be either enjoyable and interesting (if your effort is acknowledged) or a pain (if your labor is shredded).

The power of recognition. Simple acknowledgment of an employee's work can have a profound impact on their motivation and job satisfaction. In experiments, participants whose work was acknowledged completed significantly more tasks than those whose work was ignored or destroyed.

Effects of ignoring effort. Surprisingly, ignoring an employee's work can be almost as demotivating as actively destroying it. In the letter-searching experiment:

• Acknowledged condition: 9.03 sheets completed on average
• Ignored condition: 6.77 sheets completed
• Shredded condition: 6.34 sheets completed

Implementing acknowledgment. Managers can boost morale and productivity through:

• Regular feedback sessions
• Public recognition of achievements
• Creating systems to track and celebrate progress
• Encouraging peer-to-peer acknowledgment

4. The joy of earning through effort outweighs easy rewards

Contrafreeloading refers to the finding that many animals prefer to earn food rather than simply eating identical but freely accessible food.

Intrinsic motivation in work. Humans, like many animals, often prefer to work for rewards rather than receive them freely. This phenomenon, known as "contrafreeloading," contradicts simple economic models of behavior that assume individuals always seek to minimize effort.

Examples of contrafreeloading:

• Animals choosing to solve puzzles for food instead of eating from an easily accessible source
• People engaging in challenging hobbies or DIY projects despite cheaper alternatives
• The popularity of video games that require significant effort to progress

Implications for job design. To harness this aspect of human nature, employers should:

• Provide challenging but achievable tasks
• Offer opportunities for skill development and mastery
• Create a sense of accomplishment in daily work
• Balance extrinsic rewards with intrinsic motivation

5. Small reductions in work meaning have substantial impacts

We dramatically underestimate its power.

The fragility of meaning. Even minor changes that reduce the perceived meaning or importance of work can have significant negative effects on motivation and productivity. This was demonstrated in the Lego Bionicle experiment, where simply disassembling completed models in front of participants dramatically reduced their willingness to continue the task.

Cascading effects. Small reductions in meaning can lead to:

• Decreased job satisfaction
• Lower productivity
• Higher turnover rates
• Reduced overall quality of work

Protecting meaning at work. To maintain employee motivation, organizations should:

• Carefully consider the impact of procedural changes on perceived meaning
• Communicate the purpose and importance of all tasks, even seemingly minor ones
• Create opportunities for employees to see the end results of their work
• Foster a culture that values and respects all contributions, regardless of scale

6. Division of labor can diminish overall job satisfaction

Not only was poor Jay doing only a small part of a relatively meaningless task, but he never had the satisfaction of seeing this work completed.

Drawbacks of extreme specialization. While division of labor can increase efficiency, it can also lead to decreased job satisfaction and motivation. When employees only see a small part of the overall process, they may struggle to find meaning in their work.

Balancing efficiency and satisfaction. Organizations should strive to:

• Provide employees with a clear understanding of how their work fits into the bigger picture
• Rotate job responsibilities to give a broader perspective
• Create opportunities for cross-functional collaboration
• Celebrate team achievements to foster a sense of shared accomplishment

Reimagining job design. Consider implementing:

• Job enrichment programs that add variety and responsibility to roles
• Regular updates on project progress and outcomes
• Systems that allow employees to track the impact of their contributions

7. Self-control and delayed gratification are challenging but vital

Despite the prodding of conscience, we often would rather avoid doing something unpleasant now (exercising, working on an annoying project, cleaning out the garage) for the sake of a better future (being healthier, getting a job promotion, earning the gratitude of one's spouse).

The struggle with procrastination. Humans often struggle to prioritize long-term benefits over short-term comfort or pleasure. This tendency can lead to procrastination, poor health choices, and financial difficulties.

Strategies for improving self-control:

• Create specific, actionable plans for long-term goals
• Use precommitment devices (e.g., apps that limit social media use)
• Break large tasks into smaller, manageable steps
• Reward yourself for completing difficult tasks
• Visualize the long-term benefits of delayed gratification

The power of habits. Developing strong habits can reduce the need for constant willpower:

• Start with small, consistent actions
• Link new behaviors to existing routines
• Track progress to maintain motivation
• Create supportive environments that make good choices easier

8. Irrational behaviors are predictable and can be managed

We are pawns in a game whose forces we largely fail to comprehend.

Understanding irrationality. While humans often behave irrationally, these behaviors follow predictable patterns. By recognizing these patterns, we can design better systems and make better decisions.

Common irrational behaviors:

• Overvaluing what we own (endowment effect)
• Being overly influenced by irrelevant options (decoy effect)
• Placing too much importance on free items
• Allowing emotions to override logical decision-making

Applying behavioral insights. Organizations and policymakers can use this knowledge to:

• Design more effective incentive structures
• Create "nudges" that guide people toward better choices
• Improve product pricing and marketing strategies
• Develop more realistic economic models and policies

9. Social and market norms profoundly influence our decisions

When we deal with money, we are primed to think about our actions as if we had just signed an honor code.

The power of social norms. Our behavior is strongly influenced by unwritten social rules and expectations. These norms can often motivate us more effectively than financial incentives.

Conflict between social and market norms. Introducing money into social situations can backfire by shifting the context from social to market norms. This can lead to:

• Decreased motivation for volunteer work when payment is offered
• Reduced willingness to help others when a small payment is involved
• Changes in the perceived value of gifts vs. cash

Leveraging social norms. Organizations and policymakers can use social norms to encourage desired behaviors:

• Highlight positive behaviors of peers (e.g., energy conservation comparisons)
• Frame requests in terms of social benefits rather than financial gains
• Create a sense of community and shared purpose
• Use public commitments to encourage follow-through on goals

Last updated: February 4, 2025