As Rory Sutherland pointed out in the video I posted last week, when dealing we economic issues we tend to ignore issues of perception in favour of rational structural solutions. (Hence the decline in the influence of marketing and advertising within client organisations. Discuss)
But this is starting to change. Reported in the hallowed pages of the Economist the results of an very interesting experiment in China.
In a working paper published in December of last year, Tanjim Hossain and John List showcased the results of an experiment with incentives in a Chinese technology manufaturing plant.
In the experiment staff received one of two letters. In the first they were told they would receive a weekly bonus if they hit certain targets. In the second they were told they had already been awarded the bonus but would forfeit it should they not hit said targets.
From the perspective of neo-classical economics these two options are identical, beacuse the value of something is defined by what it is, not how it is perceived. But, of course, this is not how things turned out. Perception is everything.
Why? Well, the experiment illustrates something we've mentioned before. Loss Aversion. The basic principle that people feel losing something is more painful than gaining the same thing is pleasurable. According to this theory, the people who were 'awarded' the bonus, but then could potentially lose it, would be more liklely to hit their targets than the other group.
And this is exactly what happened.
Even in the most seemingly rational of situations, perception is everything.
-- Toby
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