Science Says Money May Not Be The Best Long-Term Motivator
Money is a paradox. Of course, everyone needs enough money to live. Anyone who has ever struggled to pay bills knows how motivating money can be. Yet at a certain point, more money has quickly diminishing effects on our overall state of happiness.
Angus Deaton and Daniel Kahneman have done extensive research over the years showing that magic number to be somewhere around $75,000 per year (give or take, of course, depending on where you live). Beyond the comfortable level of $75,000, money has less and less effect on our sense of ‘happiness’.
What this means for all of us is, money is not enough of an incentive to keep you motivated at work. In fact, financial compensation used as the primary way to motivate performance will most likely reinforce functional fixedness. And functional fixedness, in turn, may ultimately reduce creativity, productivity, and motivation over the long-term.
Science clearly demonstrates the key to reigniting your motivation while retaining creativity is rooted in switching from ‘carrot and stick’ motivation to intrinsic motivation. The bottom line — you need to worry less about the money and instead concentrate on SMARTer goal setting techniques.
To understand why you should set smarter goals, you’ll need to explore two psychological triggers and how these triggers affect us. In this article;
- I’m going to define for you what functional fixedness is, and I’ll show you ways to reduce the effect of functional fixedness. (Keep reading to understand the psychology).
- Next, I’ll share my strategies for setting goals with loss-aversion-triggering consequences to keep you motivated for the long-haul.
- Finally, I’ll leave you with a step-by-step guide you can start right away to strengthen your long-term motivation. (Skip to the end of the article if you’d like to get straight to work)
‘What I know is this, if you do work that you love and the work fulfills you, the rest will come.’
Oprah Winfrey
Functional Fixedness
I don’t know about you, but I hate quotes like this. Rich, successful people telling the rest of us to ‘follow our dreams and the money will follow’. I always felt it seems so easy for rich, powerful people to make statements like this. It’s easy to talk about fulfillment when you’re sitting on a pile of money, right?
Well, it turns out I was completely wrong! The hard truth is, if you keep chasing money in the short term, you will not escape from disengagement.
Not true you say? Ask yourself, if you could double your salary tomorrow at the job you have now, would you be happy? Sure, maybe for a year, maybe for a couple of months, maybe for a week. However, you eventually realize that you’re still stuck in the same dead-end job with the same problems and the same complaints.
Regardless of the money, if you have no passion for your work, sooner or later you’re going to lose motivation again. You’ll never escape disengagement because it turns out there are some really powerful psychological reasons why external motivators, like chasing money, hurt our creativity, our productivity, and our motivation.
‘[These social experiments have] been replicated over and over again for nearly 40 years. These contingent motivators — if you do this, then you get that — work in some circumstances. But for a lot of tasks, they actually either don’t work or, often, they do harm. This is one of the most robust findings in social science, and also one of the most ignored.’
Dan Pink
How functional fixedness hurts creativity
Let’s start by defining functional fixedness. Functional fixedness is a cognitive bias that limits a person to using an object only in the way it is traditionally used. According to the research, when you accidentally reinforce your functional fixedness, you actually increase the time it takes to think creatively, thereby lowering your productivity when doing complex work.
In Dan Pink’s TED Talk: The puzzle of motivation, Dan introduces an experiment called ‘the candle problem.’ The candle problem is a cognitive performance test designed to measure the influence of functional fixedness on problem-solving capabilities.
The experiment has been repeated many times with many slightly different variations, but very similar results. The original experiment design, credited to psychologist Karl Duncker, is pretty simple. The subject is given a candle, some matches and a box full of thumbtacks. The subject is asked to ‘attach a candle to the wall in such a way that it doesn’t drip on the table below.’ The solution — use the box as a candle holder.
According to Duncker, functional fixedness does not exist in small children. Small children may know a pencil is used to write with, but it might also be a paperweight or a rocket ship or whatever. As we get older, functional fixedness slowly asserts itself and eventually, a pencil is for writing and only for writing.
As adults, if we don’t have all of the resources we need to solve a problem, we need to become resourceful to find a solution. To be resourceful, we need to be creative. According to Duncker, we only become creative when we are able to reduce our functional fixedness enough to start ‘thinking outside the box’.
Where Duncker’s experiment gets really interesting is when you introduce stress and uncertainty into the mix. If offered a prize for faster performance, on average, subjects tended to solve the problem slower than subjects who were offered no bonus for solving the puzzle but rather were told that their test results were being used to establish norms for the time to correctly solve the puzzle.
Although the solution looks simple, when put under stress, functional fixedness was reinforced. Test subjects saw the box as a container for the thumbtacks and experienced increased difficulty seeing an alternative use for the box as long as the tacks remained inside it.
Ironically, test subjects weren’t able to ‘think outside the box’.
Duncker concluded,
“high drive prolongs extinction of the dominant habit and thus retards the correct habit from gaining ascendancy.”
In plain English, Duncker proposed the stress caused by linking performance to a financial reward triggers the ‘fight or flight’ response in the subject. This stress response shuts down the creativity of the subject and instead strengthens their ‘functional fixedness’.
Effectively, the subject keeps trying to do the same thing over and over in a rush to get the job completed as quickly as possible. If the subject meets with failure, the subject’s stress increases. This makes the problem even harder to solve.
Triune brain theory explained
So, you might naturally wonder, why does a trigger of our fight or flight response strengthen functional fixedness? Well, in addition to controlling things like your heartbeat or the blinking of your eyes, your fight or flight response is governed by your brain stem (sometimes referred to as the lizard brain). Your brain stem is a small bundle of nerves connecting the larger structures of your brain to the rest of your nervous system.
What I find most interesting about the brain stem is the power such an ancient brain structure has over the rest of the brain.
For example, when you are watching a horror movie, you know logically, you’re completely safe. Nothing can hurt you since obviously you’re only watching a movie and not in any kind of danger. Nevertheless, when the monster drags another victim into the dark on the silver screen, your brain-stem senses danger and triggers that sudden feeling of uncontrollable panic, completely overriding your emotional limbic system and even your logical cerebral cortex.
Once your brain stem kicks into action, you are strongly focused on the shortest route to self-preservation and survival. Your body’s response to stress is to pump a hormone called cortisol into your bloodstream. Cortisol makes you feel uncertain and worried; it also clouds your judgment.
With so much of your brain’s energy focussed on the fight or flight response, it is so much harder for you to concentrate on logic. It’s not impossible to focus on logic, just a lot harder with so much energy focussed on your brain stem.
So how does functional fixedness relate to your work?
If you are uncertain of whether or not you are receiving a bonus, or how big your bonus will be, or if someone else might be getting your bonus, then you might be triggering a mild fear response in yourself. In turn — even though it might seem illogical or counterintuitive — that mild fear response might be negatively affecting your logic, problem-solving, and judgment. Reinforced functional fixedness might be narrowing your focus, making finding creative solutions to problems more difficult.
Because you are being measured against everyone else in your department, it’s impossible for you to know exactly where the goalposts are. Unless your department is completely transparent and constantly updates everyone about every other colleague’s ‘ranking’, there is no real way to know if you are ‘winning’. I believe it is the ‘not knowing what will happen’ that can severely demotivate an employee or even cause an employee to use poor judgment and start ‘cheating’ to stay ahead of the competition.
So, what’s the alternative? Try leveraging the power of loss-aversion instead.
Why is loss aversion more motivating?
I spent over 15 years in the financial industry on the administrative side of the business, as a broker and as a financial software entrepreneur. One of the most interesting concepts in the financial industry revolves around Duncker’s work.
It is well known in the financial industry that investors’ desire to avoid accepting losses in the stock market is twice as strong as the feeling of satisfaction from making money. This phenomenon is known as loss aversion. Simply speaking, loss aversion is people’s tendency to strongly prefer avoiding losses to acquiring gains.
The term ‘loss aversion’ was coined by Daniel Kahneman, who built on Duncker’s original work. To summarize the idea quickly, investors don’t like to sell stocks in which they have a loss position, the deeper the loss in the stock, the stronger the irrational reaction.
Instead of doing the rational thing — sell the stock and re-allocate the money to a better performing investment — investors are strongly motivated to hold on to those losing stocks, rather than realize the loss by selling. Even a ‘paper’ loss can cloud judgment, causing investors to make poor decisions.
My professional experience with loss aversion
In my experience as a former financial professional, most first-time investors come to investing with an unrealistic understanding of downside risk. New investors believe ‘if’ it happens, they will be able to make rational, sound decisions. Unfortunately, once in a serious bear market, few new investors (and many experienced investors) are able to think clearly enough to make cold, clear-eyed, logical investment decisions.
This is why it is always best for financial professionals to clearly explain the down-side risk to investors. If an investor clearly understands the psychological stress they will be under if they suddenly lose 50% of their net worth, they tend to make much more logical, realistic, and sound investment decisions. Understanding the consequences of too much risk clears a path for a discussion about much more realistic financial goal setting and creative financial planning solutions.
I worked through the dot-com crisis, completely unprepared. I also worked through the ‘Great Recession’, much more prepared. I can tell you if informed honestly and accurately, a well-informed investor handles a serious down-turn much more rationally than someone who hasn’t been forced to consider ‘the worst-case scenario’. I’ve had well-informed investors logically ask me to ‘hold’, or even ‘buy’ while the market falls, even while the market is panic-selling and the talking heads on CNBC predict the end of the world.
Another interesting example of loss aversion
Kahneman’s theories were expanded on quite recently in a study conducted by Roland Fryer, Steven Levitt, John List, and Sally Sadoff. In their study, the three psychologists went into nine schools in Chicago Heights and enlisted teachers for their study.
In one group, teachers were offered a bonus at the end of the year, based on the percentile increase in student scores. The second group of teachers was given money at the beginning of the year, with conditions… they would have to pay back any reward ‘they didn’t earn’.
Teachers given the money upfront were nearly twice as effective in improving student scores as teachers offered a variable bonus at the end of the year.
‘Interestingly enough, it didn’t seem to matter much whether the pay was tied to the performance of a given teacher or to the team to which that teacher was assigned. This suggests that a merit pay regime need not pit teachers in a given school against each other to get results.’
In the candle experiment, subjects have no idea how fast they have to be to win a cash reward. That uncertainty drives the subject to try to do more, to work as fast as they can. The uncertainty of how fast they have to complete the task to achieve a reward is triggering the fear, cortisol, mind clouding cycle. On the other hand, by paying the bonus in advance, we take away some of the uncertainty. If you’re paid in advance, you have the cash in hand. The goals you need to achieve and focus on are clear.
Perhaps more simply put, earning a bonus sounds like ‘more work’ to your brain. You have to earn something that isn’t yours yet. Compound that feeling with not knowing exactly how much work you will have to do for an uncertain amount of money — I can already feel my motivation slipping away.
On the other hand, being paid a bonus in advance allows your brain to relax. Your brain understands clearly what is at stake, how success is defined, and what the consequences are of not completing the work to the agreed standard within the agreed amount of time.
What do you think? Would you rather have all the facts up front, or would you rather guess where the goal posts are? (Its a rhetorical question).
Using science to improve your motivation
Most likely, your company doesn’t pay a bonus at the beginning of the year and ask you to pay back cash if you don’t earn all of it. Almost certainly, your company has no plans in the near future to dramatically change how a bonus is paid. So how can we harness these psychological phenomena and turn them into a real-life advantage for ourselves?
Reducing functional fixedness
First, let’s make a conscious effort to reduce our functional fixedness. If you don’t already know, learn exactly how bonus is allocated at your company. A typical formula looks something like this; 10% of employees receive the highest bonus while the bottom 10% receives a reduced bonus, the difference being used to pay the extra bonus for the top 10%. In the typical bonus allocation system, employees are pitted directly against each other. Someone has to lose for someone else to win. The remaining 80% will receive an average bonus.
Now that you know this information, your goal should be to forget about achieving a top 10% bonus and instead focus on improving your motivation, your team-building skills and positively influencing the people around you. In the long run, concentrating on your self-improvement will pay you a lot more than the occasional top bonus. And believe me, if you improve your motivation at work, cooperate more and act more constructively around your co-workers even a little, you are virtually guaranteed to stay out of the dreaded bottom 10%.
As Dan Pink suggests, let’s take money off the table. By taking money off the table, we can remove uncertainty and thereby eliminate an illogical fear response. Accept that as long as your manager sees you are improving at work, you will be part of the 80% getting an average bonus.
If your self-improvement leads to the occasional top 10% bonus, that’s great but don’t obsess about it. By understanding and accepting this reality, you suddenly remove the constant burden and worry about achieving a top 10% spot or receiving a ‘need improvement’ review rating. Your brain will be freed to spend its limited resources on more valuable tasks like logic, planning and strategy instead.
Motivating with loss aversion
Second, let’s take advantage of the loss aversion phenomenon by setting smarter personal goals. It really doesn’t matter what the goal is, but the focus should be on your personal development in the areas of motivation, positively influencing others at work, and team building.
The goals should be specific, measurable, challenging (yet reasonably achievable), relevant, and time-bound with a well-defined deadline. To make the goals even SMARTer, we should define consequences if we fail to complete achievable milestones in a timely manner.
Keep increasing the difficulty when you achieve success. For example, you might set your first goal as follows:
⦁ Complete an online time management course within two months and
⦁ Write down three positive things that happen to you each day at work for the next 90 days.
Next, we need to set some loss-aversion triggering consequences. For example:
⦁ If you complete both goals, you go to Hawaii on vacation at Christmas.
⦁ If you only complete one of the goals, you still go to Hawaii, but you stay at a 2-star hotel a few blocks from the beach instead of the 4-star hotel right on the beach.
⦁ If you don’t complete either goal, you go back to your home town to enjoy Christmas with your great aunt (it’s been a long time since you saw her anyway, right?)
What makes this kind of goal setting work is clearly defining consequences for not achieving realistic, meaningful, time-bound goals. By setting smart goals, we can leverage the loss aversion reaction. You’re not chasing money. In fact, you will save money by going back to your home town. Instead, you are simply presenting your brain the possibility of taking something desirable away that you already have and presumably would like to keep; a trip to Hawaii in a 4-star hotel.
Remember, you need to measure your own results. If your goal is writing down three positive things that happen to you each day, enter it in a spreadsheet so you can easily check how well you did. If you’re taking an online time management course, set a passing score you think equals success.
Since you’re evaluating yourself, you will have to judge how strict you want to be on defining success in each goal. Since you’re paying the bill for the Christmas trip regardless of where you go, I suggest a good place to start is imagining if you would consider your definition a success if you were a business owner giving the holiday away to one of your employees. If you think 90% achievement of a goal is fair, write it down before you start and hold yourself to that standard at the end of the evaluation period.
My step-by-step guide for setting goals with loss-aversion-triggering consequences
Starting tomorrow
- Reduce your functional fixedness by forgetting about your bonus structure. Focus instead on self-study. Find an online time-management or skill development course.
- Once you’ve found a course that interests you, enter a due date in Goodtask, or some other task-tracking software or in a paper calendar. If the course is going to take a while, set milestones, and reminders for yourself to keep on track.
Before the end of this business week
- Write down four personal or professional goals you would like to complete within six months to one year. Don’t forget to enter the due dates into Goodtask. You can use the time management or skill development course you enrolled in as your first professional goal.
- Write down a reward for completing all goals on time. Write down what constitutes successful completion of each goal. Also, write down what you will take away from yourself if you don’t complete all or any of your goals. Be specific and share your goals and consequences with friends and family. (If your spouse and children know the family isn’t heading to Hawaii unless you complete a few of your professional goals, your family will gladly help motivate you!)
- Keep the process going. If you complete all goals ahead of schedule, brainstorm new goals to complete.
Before the end of the month
- Set one dream goal for yourself. (Eg.increase your income 50%, complete a part-time MBA, start a part-time Amazon or eBay business, write a book …) This big goal must be something that excites you. Start working backward and figure out the milestones you will need to make this big goal happen. Turn the milestones into shorter-term goals and enter the goals into Goodtask to ensure you keep moving steadily toward the realization of your bigger objective.
- For example, if your goal is to increase your income by 50% within five years, you’ll have to advance two levels of responsibility in your organization by getting two separate promotions. To do that, you’ll need to demonstrate your value and get the first promotion before the end of next year. You’ll get the first promotion by landing three new big clients this year. You will land three new clients this year by, … (and in each case, set a loss aversion penalty to give your brain consequences for procrastination).
- If you are struggling to organize of all the steps you need to complete your dream goal, try downloading mind-mapping software like MindMaple. Using mind-mapping software will help you to organize your thoughts by letting you view and quickly modify all of the steps of the whole project.
Disclosure: I am not affiliated, nor am I compensated in any way by any products mentioned in this article.
If this article helped you, pass it on to someone you care about.
I’m Edward Alexander Iftody, founder of Edward Alexander Consulting and author of ‘Surviving Work’.