Social Norms versus Market Norms

One advantage of the lockdown is that recruitment activity has come to a grinding halt and we have a lot of time to read.

In Chapter 4 — The Cost of Social Norms of the book “Predictably Irrational” https://amzn.to/3bPiigd by Dan Ariely, he says that standard economic theory assumes that we are rational, but we are not. Most of the time, we’re deeply irrational.

The author talks about social norms in determining our actions. He cites the paradox that often we will do some things for free but not if we are paid. So, the primary motivation for frontline workers — doctors and policemen, in the fight against Corona, is not money. You can’t motivate people to risk their lives for a month of salary. They do it to protect others. Few teachers or nurses will put in the long hours on the job if you appeal to their market norms, but they will if you appeal to their social norms. Contrary to an economics education will tell you, we are not solely motivated by money.

The author demonstrates that we are not as greedy and selfish and that we are also motivated by social norms that can often be more important than money.

Thus maybe, we live in two worlds, one where social norms dominate and the other where market norms dominate.

a) Social norms encourage community. If someone does you a favour, you aren’t obliged to pay it back immediately.

b) Market norms are less emotional and clear cut transactions , ones that require immediate payment

In an experiment, Ariely asked volunteers to complete the mundane task of dragging a circle on a computer screen into a box, whereupon it would re-appear on another part of the screen and be repeated. The time limit for this exercise was 5 minutes.

- Group 1 was promised 5$ for the task

- Group 2 was promised just 50 cents

- Group 3 wouldn’t be paid anything, but instead told they were doing him a favour.

The results were stunning — Group 1 dragged on averaged 159 circles and Group 2 just 101 circles.

a) This shows evidence of incentive pay, that if you pay workers more, they’ll work harder.

b) Secondly that although the first group were paid 10 times as much they were only 50% more productive.

c) The most interesting was Group 3 which was not paid and dragged 168 circles. This group was the most productive despite not getting paid, which shows that social norms can trump market norms.

Social and market norms usually don’t mix together very well. Or do they? Are there organisations that successfully combine the two norms, market and social?

The author cites the case of

- Lawyers who were offered $30 an hour to work for poor elderly people and refused.

- Then they were asked if they would do it for free and they agreed.

How could $0 be more enticing than $30?

When they were offered $30 lawyers judged it based on market norms and decided that was too little money. When they were offered to do it for nothing, lawyers judged it based on social norms and considered it an act of charity, so they agreed.

Why couldn’t they have taken the $30 and still considered it charity? Because the social and market norms don’t mix and we can only be in one world at a time.

In most instances, on the work front, we have a transactional relationship with our team members — ones completely driven by Market Norms. You will often hear bosses saying — Why do you take this salary for, if you cannot do anything properly. However, the most motived juniors are those where the boss is able to patch in an element of Social Norms.

Businesses often tried to leverage Social Norms to their advantage. They advertise and showcase themselves as friendly neighbours who help you out and you can count on. This is a clever move because if they can tap into people’s social norms, then they can gain strong loyalty from consumers who will stick with them even when other businesses offer a better deal.

Regards

Sonia Singal