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The Positive Effect of Negative Incentives
Ideas for Leaders #308
The Positive Effect of Negative
Incentives
Key Concept
Authors
New research shows that negative incentives — incentives that require
individuals to perform in order to avoid a loss — are more motivating than
positive incentives, which motivate individuals through a gain (for example, a
bonus).
Goldsmith, Kelly
Dahr, Ravi
Institutions
Kellogg School of Management
Idea Summary
The question of whether positive or negative incentives work better has long
been a matter of debate in society. From biblical times to the very recent past,
children were thought to be better motivated through negative incentives —
known in the bible as the “rod” and two generations ago as “a good spanking”
— than positive incentives.
The choices are less stark in the workplace, but researchers in a variety of
disciplines (e.g. behavioural economics, social psychology, etc.) still disagree
on the effectiveness of extrinsic motivating efforts. Kellogg Assistant Professor
of Marketing Kelly Goldsmith and Yale Professor of Management and
Marketing Ravi Dahr designed two experiments to test whether positive or
negative incentives were more effective, followed by additional experiments to
explore some of the reasoning behind the results.
The experiments were simple: participants were given a series of anagrams
(such as ETKBAS) and asked to decipher them (BASKET). One or two of the
anagrams were so difficult as to be undecipherable. The goal was to see how
long the participants persisted in seeking the solutions. In the positively
framed experiments, the participants received a small amount of cash for each
solution. In the negatively framed experiments, the participants were given
cash at the beginning of the experiment, and then lost a small sum for every
unsolved problem.
The first experiment involved undergraduate students, the second a diverse
group of working adults. The difference in ages between the two experiments
was key as previous research has shown that people of different ages react
differently to negative or positive stimuli — for example, attention to negative
stimuli appears to decrease with age, and memory of positive stimuli
increases with age.
The results of the experiments confirmed the expectations of the researchers.
Based on the length of time that participants persevered in their search for
solutions, negative incentives proved more motivating than positive
incentives. When broken down by age, the results showed that younger
people were more motivated by negative than positive incentives, while the
opposite was true for people aged 35 or older.
Yale University
Source
Journal of Experimental Psychology: Applied
Idea conceived
September 2013
Idea posted
January 2014
DOI number
10.13007/308
Subject
HR Management
Performance Management
Reward Management
In a third experiment, the researchers revealed a disconnect between what
people think will motivate them and what actually drives their motivation.
Specifically, most participants believed that positive incentives would be more
motivating, when the opposite was true. One possible explanation for the
mistaken prediction was the commonly accepted wisdom that people are more
motivated when they enjoy what they are doing. The role of joy — or, at least,
assumptions about joy — was confirmed by two final experiments in which
participants assumed that positive incentives would be more enjoyable, and
that more enjoyable incentives would be more motivating.
Business Application
When applying the results of this research, managers should keep the context
in mind: The research involved tiny sums of cash and just a few minutes of
time. It’s possible that applying the results to annual salaries or bonuses might
lead to different reactions. However, there are interesting implications that
managers should explore — and that are already being explored by certain
firms and industries.
The first implication is that positive incentives are not necessarily the most
motivating. Today, firms rarely use negative incentives, basing their decisions
on managers’ intuitions that people will not respond to negative incentives.
However, the research shows, within its context, not only that negative
incentives can be motivating, but also that our intuitions or biases about what
works and does not work are often wrong. Therefore, based on this research,
managers could begin designing some incentive programs that might seem
counterintuitive, but especially if targeted toward younger employees, could
lead to higher performance. Managers should also reconsider their one-sizefits-all motivation programs given the different responses to incentives based
on age.
Some firms are already applying negative incentives. Law firms allocate
bonuses as part of annual salaries but inform employees that the bonuses are
lost if they do not meet a certain number of billable hours. Another example of
negative incentives is the stipulation that health care coverage by certain
companies is reduced if employees do not take certain health improvement
steps. Despite our natural bias against negative incentives, this research
suggests that these types of measures should be reconsidered.
Further Reading
Negativity Bias and Task Motivation: Testing the Effectiveness of Positively versus
Negatively Framed Incentives. Kelly Goldsmith & Ravi Dahr. Journal of Experimental
Psychology (Forthcoming).
To Motivate, Better to Take Away Than to Give. Based on the research of Kelly
Goldsmith and Ravi Dhar. Kellogg Insight (7th October 2013).
Further Relevant Resources
Kelly Goldsmith’s profile Kellogg School of Management
Ravi Dhar’s profile at Yale School of Management
Kellogg School of Management Executive Education profile at IEDP
© Copyright IEDP Ideas for Leaders 2014
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