The Two Worlds We Live In

 

In his seminal book “Predictably Irrational”, behavioural economist Dan Ariely describes how we live in two worlds: one is governed by social exchanges and the other is characterised by market exchanges.

He emphasises that different rules apply to each of these two very different worlds.

For instance, imagine that your friend invites you to a party and you end up having so much fun that you decide to pay your friend for all the expenses it took to organise the thing.

How do you think your friend would react?

Such good deeds don’t come at a price.

The very act of offering to pay for them (i.e. placing a price tag on them) transitions the relationship with your friend from a social exchange to one governed by market norms.

In other words, by proposing such a thing, you’ve introduced market norms into a social exchange.

You’ve changed the dynamic of the social relationship and most likely even hurt it by negating the very foundation it was built upon in the first place i.e. intangible qualities such as trust, loyalty, kindness.

Social contract vs. market exchange

In his book, Ariely mentions an experiment conducted by researchers Uri Gneezy and Aldo Rustichini where the long term effects of introducing market norms into a social relationship could be recognised.

The researchers studied a daycare centre in Israel where they imposed fines for parents who were late in picking up their children.

From a behaviourist standpoint, it makes sense: if you want to reduce the frequency of a behaviour, you have to impose some sort of punishment to do so.

After all, world-renowned behaviourist B.F Skinner would reduce a rat’s button-pressing behaviour by simply shocking it. This is called negative reinforcement and it reduces the frequency of an undesirable behaviour.

However, upon introducing these fines, the situation hadn’t got better. Parents continued to be late in picking up their children. In fact, they were even more late than ever before.

How could this be?

Well, before the fine was introduced, the relationship between the caretaker at the daycare centre and the parents of the children operated within a world based on social exchanges.

Whenever the parents were late, their sense of guilt was so great that it increased their compliance to avoid being late.

But now that the fines were introduced, the dynamic of the social relationship had changed. The parents began to interpret the social exchange in terms of market norms.

They could now choose to be either a) early and not pay, or b) late and pay, say £2. They could literally buy themselves some time by paying the fine, absolving themselves of any guilt in the process, living in the conviction that it’s okay to be late as long as you pay up.

The relationship had moved from an implicit social contract to one dictated by market norms.

No going back

What happened when the fines were removed? Did the relationship between caretaker and parent return to one that was based on a social norms?

Here’s what Dan says about that:

“The most interesting part occurred a few weeks later, when the day care center removed the fine. Now the center was back to the social norm.

Would the parents also return to the social norm? Would their guilt return as well? Not at all. Once the fine was removed, the behavior of the parents didn’t change.

They continued to pick up their kids late. In fact, when the fine was removed, there was a slight increase in the number of tardy pickups (after all, both the social norms and the fine had been removed).”

This experiment illustrates an unfortunate fact: when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish.

Once the bloom is off the rose — once a social norm is trumped by a market norm — it will rarely return.”

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