What is... conspicuous consumption

When you shop, how much of what you buy is driven by need? How much by an urge to show off to friends and co-workers?
Spending money on extravagant items that display wealth or status is called “conspicuous consumption”. It is unclear why exactly we do this – particularly as it can be damaging to wealth and happiness – but there is some evidence that biology might play a part.



If we want to be happier, wealthier and less wasteful, a first step may be to understand the underlying motivations for why conspicuous consumption is so attractive to some and what can be done about it.

A century of “look at me”
Back in 1899, Thorstein Veblen wrote about conspicuous consumption in his book The Theory of the Leisure Class. Since then, it has traditionally been assumed that our own conspicuous spending behaviour – such as buying designer clothes or expensive cars – is driven primarily by the social environment around us, by cultural norms which motivate us to "keep up with the Joneses".

The animal kingdom does it, too 
However, recent research in evolutionary psychology and biology challenge these assumptions by arguing our innate biological desire to mate and reproduce influences spending behaviour. This evidence suggests there may be a “hard-wired” component to conspicuous consumption.
In the animal kingdom, for example, peacocks and other species engage in displays of resources which are crucial to their mating strategies. Similarly, humans buying flashy technology or fast cars may be signalling their sexual appeal through this consumption. Author Robert Frank writes in The Darwin Economy about a consumption “arms race”.

Putting it to the test 
Academic research has been investigating this biological link to conspicuous consumption. A team led by Jill Sundie, at the University of Texas at San Antonio, ran an experiment in which participants imagined they had received an unexpected windfall of $2,000. They were asked how much of this money they would like to spend on purchases which might convey their newfound wealth, such as designer watches or treating ten friends to a night out on the town.
Those taking part in the study were split into those put into a ‘mating frame of mind’, by looking at dating profiles of eight attractive (and single) fellow students, and those not put into this frame of mind, who instead looked at photos of campus dormitory buildings.
The study found men in a romantic frame of mind chose to spend significantly more of their wealth on conspicuous purchases. Women’s spending, on the other hand, was unaffected.
Of course, it’s not clear whether the men were “hard wired” by nature to spend more or if they are responding to social pressures. But it’s an interesting finding nonetheless.

When showing off goes wrong
Spending a little on things you like might not be a problem – but only up to a point. This study from the United States suggests people are getting into debt in response to pressure to buy items to increase or maintain social standing. This Swiss happiness research examines envy of luxury cars and concludes conspicuous consumption can be bad for our overall happiness.

Shop and think 
It remains difficult to say how much of our conspicuous consumption is driven by ancient evolutionary demands we aren't aware of, and how much by the social pressures of the modern age.
New research from evolutionary psychology helps us to put our behaviour in perspective and understand that it’s neither a moral failing nor inevitability. Knowing where our desires come from means we may be able to make the informed choice to alter what we do in the future.
One idea for the next time you go shopping for things you don’t need, is to think about what forces might be driving you. Weigh up what’s in your best interests.

(This post originally appeared on the Ezonomics website http://www.ezonomics.com/whatis/conspicuous_consumption)

What is... gamification

Why do teenagers seem so transfixed when they play the latest video game for hours on end? 
Chances are part of the motivation is the desire to clock up more points, move onto the next level, win badges and other elements common to many games. “Gamification” – a relatively new buzzword – is when these addictive aspects of gaming are applied to other parts of life.

Gamification can make activities more fun, social or engaging. But beware, as well as encouraging positive habits, it can also be used in less comfortable ways. And the “players” may not even be aware of it.

Game on
Games often involve points, levels and challenges – perhaps a leader board featuring the best of the best. These elements might offer a sense of success and progress as players work their way through.
Game mechanics don’t have to be complex and gamification can involve simply adding game elements to other areas of life. Anyone who has filled out a LinkedIn profile or a Google+ page will be familiar with the “progress bar”, a percentage-based indicator of how complete a profile is. Although it may not be obvious, a progress bar is actually a basic game mechanic. Users are motivated to invest more time and effort into their profiles simply to reach 100% completeness, the result being given the title of "All Star", a reward in status without which many users may not have bothered.

Pavlov’s dog was right
The term gamification was coined by British-born computer programmer and inventor Nick Pelling back in 2002, and despite it only gaining popularity in the last few years, the psychology behind it has been around for much longer.
Gamification comes down to basic rewards principles.
The classic example of Ivan Pavlov's experiments with dogs demonstrates how animals (humans included) are highly influenced by rewards and feedback mechanisms, often without being consciously aware of it.
American academics Geoffrey and Elizabeth Loftus describe in their classic and influential book Mind at Play: The Psychology of Video Games (published in 1983) how games have the potential to foster addictive behaviours because they use "uncertain schedules of reinforcement". Games reward and punish participants in unexpected ways, leading to excitement and pleasure when played. 

Are loyalty cards part of a game?
Airlines offering frequent flyer programmes are arguably players in this push for gamification.
Customers earn airmiles (points) for flights and move from up the tier levels perhaps from bronze to silver or gold (moving up to the next level and unlocking privileges). At times, there might even be the chance to complete a challenge, such as “take three flights in the next 90 days” to earn bonus airmiles.
Coffee cards, supermarket clubs and other retail schemes also have hallmarks of gamification.
Gamification is also used to encourage regular exercise or weight loss – and is used in money management apps.

Set the rules
Gamification is set to become more popular, with consultancy firm Gartner predicting that by 2015, more than 50% of organisations that manage innovation processes will gamify the processes.
A lesson is to be wise to who is setting the rule of the game.
Collecting airline frequent flyer points might be a savvy bonus for people who will be travelling anyway, can get a good price with the airline and enjoy that company’s service. In that case, it is as if the shopper has control of the game.
On the flipside, a traveller who gets swept up in the game and books flights in the hope of gaining additional status might like to take a moment to rethink their strategy.

(This post originally appeared on the Ezonomics website http://www.ezonomics.com/whatis/gamification)

Encouraging Innovation in Public Sector Employees: The Role of Financial Incentives on Creative Tasks

Encouraging Innovation in Public Sector Employees: The Role of Financial Incentives on Creative Tasks

Innovation in the public sector is no longer a luxury. Change has now become the rule, rather than the exception, as new global challenges mean innovative and creative solutions are required from government employees as never before. This task is made both more urgent and more difficult as budget cuts continue to bite.  What are the primary levers available to encourage innovative ideas and behaviour from public sector employees? This paper looks at current evidence from behavioural science to better understand the problem and argues that classic assumptions of reward do not apply when trying to encourage more complex and creative behaviours.

You want Innovation? Just pay workers more.

The public sector is often criticised for its slow pace of innovation and change [1]. This is despite a widespread and growing range of innovative programmes across public sector organisations globally. The problem is that such innovation is almost exclusively the preserve of senior decision-makers, specialist ‘innovation units’ or expensive external consultants. How do we encourage innovative and creative behaviours at the level of the employee and the team?

            Popular management books are filled with examples of providing financial incentives – from bonuses, competitions and prizes - to reward employees for innovative ideas and behaviours. Such incentives are often regarded as good value, as ideas from employees are a major source of value creation in firms. Prizes for innovative ideas, such as GE’s Ecomagination Challenge, attract tens of thousands of participants and similar practices have attracted much attention in the public sector. For example, high profile successes in the US and elsewhere show the value of ‘gain-sharing’, where public sector employees take home a portion of the savings they generate for the organisation. And bonuses and differential pay structures have long been argued to be useful to attract the ‘stars’ who will steer innovative change in the public sector [2].

These ideas are inspired by standard economic principles, which argue that to encourage a specific behaviour it must be compensated adequately through reward, with higher rewards resulting in more of the desired behaviour. This principle is also argued to be true for cognitively demanding, creative tasks, as thinking is always a costly activity and must therefore be compensated in the same way [3].

When Rewards Reduce Creativity

Psychologists, on the other hand, argue that creativity is primarily encouraged through intrinsic motivation and monetary incentives may in fact displace the intrinsic pleasure derived from engaging in an activity. This is supported by a large and growing stream of literature finding that financial incentives have a negative impact on creativity and innovation. For example, in a set of field experiments in rural India, participants completed tasks requiring a wide range of abilities: creativity, attention, concentration, and memory. They were randomly informed that exceptional performance would be rewarded by a small, medium, or large financial bonus (equivalent to a day, two weeks, or five months’ salary respectively). In contrast to the economics-based approach, those in the medium bonus condition performed no better than participants in the small bonus condition, while participants in the large bonus condition performed worst of all [4]. These surprising findings were replicated using functional magnetic resonance imaging (fMRI) to monitor participants’ brain activity, where it was found that the prospect of obtaining larger-than-average rewards engaged a relatively larger share of attention and working memory, leaving little available to carry out tasks creatively or effectively [5].

Of course, these studies are set against a vast economics literature demonstrating the value of financial incentives. However, their conclusions are far from unique. A recent meta-analysis reviewed 46 laboratory and field experiments on pay-for-performance and found clear negative relationships between tangible rewards and performance on some tasks. It seems that for more interesting and creative tasks (such as solving mathematical problems) financial rewards have a negative impact on performance, while for simple non-creative tasks (such as installing automobile windows), financial rewards have a positive effect [6]. Experimental studies completed in the past year, which have yet to be published, show similarly that financial incentives have a neutral or negative influence on open-ended creative thinking [7, 8].

Implications for Public Sector Managers

The findings outlined above are important because complex and creative tasks are an essential part of modern day-to-day public sector work, and so understanding what drives this behaviour is a crucial tool for managers. A review on bonuses in the public sector commissioned in 2012 by the UK government demonstrates the difficult decisions in how best to motivate employees with financial means. The emerging evidence outlined here suggests that creating an environment where creativity can flourish requires us to reject many of the old assumptions about employee motivation through financial incentives. Therefore, to encourage creativity and greater innovation from the public sector workforce, managers must instead focus greater efforts on the many non-financial levers available to them. In her classic account, Professor Teresa Amabile of Harvard University suggests the most crucial factors are for employees to feel challenged, to have freedom, to have the resources to achieve the task, and supervisory encouragement [10]. A deeper understanding of the motivational forces acting upon employees is crucial to maximise the human capital potential of the public sector and to overcome the extraordinary challenges currently facing governments across the world.

           

1.       Windrum, Paul and Koch, Per. 2008. Innovation in the Public Sector Services: Entrepreneurship, Creativity and Management. Northampton Mass. Edward Elgar Publishing.

2.       Flynn, Norman. 2007. Public Sector Management. 5^th Edition. Financial Times/ Prentice-Hall.

3.       Camerer, Colin & Hogarth, Robin. 1999. The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework. Journal of Risk and Uncertainty, 19, 7-42.

4.       Ariely, Dan, Gneezy, Uri, Loewenstein, George and Mazar, Nina. 2009. Large Stakes and Big Mistakes. Review of Economic Studies, 76, 451-6.

5.       Mobbs, Dean, Hassabis, Demis, Seymour, Ben, Marchant, Jennifer, Weiskopf, Nikolaus, Dolan, Raymond and Christopher, Frith. 2009. Choking on the money: Reward-based performance decrements are associated with midbrain activity. Psychological Science, 20, 955-962.

6.       Weibel, Antoinette., Rost, Katja and Osterloh, Margit. 2010. Pay for Performance in the Public Sector: Benefits and (Hidden) Costs. Journal of Public Administration and Research Theory, 20, 387-412.

7.       Eckartz, Katharina, Kirchkamp, Oliver and Schunk, Daniel. How Do Incentives Affect Creativity? (December 12, 2012). CESifo Working Paper Series No. 4049. Available at SSRN: http://ssrn.com/abstract=2198760.

8.       Charness, Gary & Grieco, Daniela, 2013. Individual Creativity, Ex-ante Goals and Financial Incentives. University of California at Santa Barbara, Economics Working Paper Series qt4mr6p1d5, Department of Economics, UC Santa Barbara.

9.       Bonuses in Public Sector Under Review. BBS News. 13^th February 2012. http://www.bbc.co.uk/news/uk-17008020

1.   Amabile, Teresa. 1998. How to kill creativity. Harvard Business Review, 76, 77-87.

New Website for Behavioural Economics Events: www.be-events.org

A new website - www.be-events.org - provides a free one-stop-shop for events in behavioural economics and applied behavioural science.

The website aims to offer a comprehensive list of BE events across the world, with visitors to the site able to  filter events by region. Currently many of the events are based in the UK, but it is hoped this will change as the site's following grows, and more events are added by the community of users.

The site also acts as a Calendar application, meaning anyone with Outlook, Google Calendar or other calendar systems can add the list of events to their personal calendar at the bottom of the page. Just click +Subscribe or +Add to Google.

The website was created by Joe Gladstone, a PhD researcher at the University of Cambridge studying financial decision making. It is updated jointly with Jon Jachimowicz, another graduate research student at the university. Following its creation, the website has kindly been sponsored by BE Works, a behavioural consultancy based in Toronto run by many leading academics, including Dan Ariely and Nina Mazar.