It’s a Tuesday night and your good friend calls you to come to the gym and play basketball. You don’t really have much to do and you haven’t played in a while so you agree to come. You get to the gym and almost immediately get thrown into a pickup game. Your team is down 2 points and you pull up from the 3-point line in attempt to tie the game. Your shot is off and you miss the basket. The other team grabs the rebound, drives down the court, and scores an easy layup to win the game. Your friend walks over to you and pats you on the back and gives you a pointer on improving your shot. You two practice getting the shot down before you play again and the next game your shot is on point. As the night winds down and people flee the gym, you pull your friend to the side and give him a $20 bill. “Thanks for the pointer, man!” you exclaim. Your friend flings the money back at you and calls you a fool, slightly offended. What happened here? Why is your friend offended? Why is it wrong to tip your friends when they help you out? Well, you have just taken your relationship from a place of social norms to a place of market norms. What does this mean, exactly?
Our lives have two realms in which we are constantly balancing that affect the types of relationships we have. In the realm of social norms, everything we do is from a place of cultural and social expectations. We base this knowledge off of what others do and what they think we should do. We are social beings and our purpose when operating off social norms is to enhance our relationships with our friends, family, and communities. When we do our friends a favor, we do not expect an immediate payback and we especially do not expect monetary compensation. Helping other people brings us joy in itself, that is the payoff. If your friend gives you advise in an area that they are experts in, you shouldn’t offer to pay them. Instead, down the road when the roles are reversed you can give them advise in an area that you are knowledgeable in.
On the other end of the spectrum is market norms. These relationships aren’t necessarily friendly ones. This usually entails how much you are willing to pay for something or how much money you require to do a job. There is a clear exchange of money or services that both parties understand and agree to. You operate in market norms when dealing with your employers or your car dealership for example. When buying a car, you aren’t there to help out the car salesman. Just because you two build some rapport doesn’t mean you are going to offer to pay more money for the car to increase his commission. Vice versa, the car salesman isn’t going to knock off $10,000 from the car just because you both like the Atlanta Falcons and you complimented his tie clip. Your relationship with companies that offer you a service are never that of social norms, no matter how hard they attempt to make it seem that way.
A study conducted by Uri Gneezy (the Epstein/Atkinson Endowed Chair in Behavioral Economics and professor of Economics and Strategy at the University of California) along with his partner Aldo Rustichini (a professor in Economics at the University of Minnesota) examined the change in behavior from parents when an Israeli daycare center altered a social norm into a market norm. At the daycare, it was somewhat common for parents to be late picking up their children. In an attempt to decrease this behavior and for the purpose of the study, the daycare started charging a $3 fee to those parents who were late. Prior to installing this late fee, the daycare relied solely on social norms to ensure that the parents picked up their kids in time. The guilt that the parents felt when arriving late controlled their behavior and influenced them to be on time as not to be rude. While the relationship was rooted in market norms, the daycare workers were not receiving any additional compensation for staying late with the children, thus making this aspect of the relationship based off of social norms. Once the daycare began charging the late fee, that aspect of the relationship now became based on market norms. Instead of decreasing the amount of late pickups, the fee had the opposite effect. Parents now made the decision to be late or not pending on how willing they were to pay the additional $3 fee. After more and more parents started picking up their kids at their own leisure, the daycare decided that this course of action was not the right decision and waived the late fee. This decision was made hoping that the parents would now go back to the previous behavior and act on social norms with the feeling of guilt controlling their tardiness. However, after the late fee was waived even more parents began picking up their children late at an increased rate.
The study showed that when you take a relationship from social norms to market norms, it is very difficult to revert the relationship back to a social one. It is important that we keep this is in mind when dealing with friends and family and operating in a social realm. When you buy someone a gift, don’t try and rub in how much you paid for it. When you take a date out to a nice dinner, don’t mention how much you are spending or the price of the options. If you buy your dad a nice bottle of bourbon, even if he thinks it’s a cheap bottle from the liquor store don’t dare mention that you paid a hefty price for it. This is the fastest way to tarnish a relationship. If a friend asks you to help him carry his new couch into his house, don’t charge him $20 for your help. In doing so, the next time you need his help with something be prepared for a price tag to be thrown at you.
Behavioral Economics expert Dan Ariely has done a ton of research on this topic and highlights many interesting findings in his book “Predictably Irrational.” In the book he describes a study he did at Duke University where he monitored the different outcomes of social norms versus market norms. In the study he had a computer simulation set up in the lab where students were to click and drag as many circles as they could in and drop them in a square on the other end of the screen in 5 minutes. The output that would be measured was the effort that the participants put into the task. He had three focus groups. In Group A, he gave the students $5 in advance for participating. In Group B, the participants were awarded only $0.50 for their efforts. Finally, in Group C the task was presented as a social effort to help the professors in the lab with no mention of any compensation. So how do you think the groups performed? Group A dragged on average 159 circles while Group B dragged an average of 101 circles. The increase in money influenced the participants who were paid more to perform at a higher rate. So Group C who didn’t receive any money at all must not have performed very well, huh? Wrong. Group C had the highest labor output with an average of 168 circles.
The results show that people are willing to work harder for a cause than they are for money. When money is introduced, we quickly decide how much output that money is worth. This same concept applies to our own careers and hobbies. You are always told to find something you would be willing to do for free, and get paid for it. But why is it when we begin to do something we love for money that we lose the joy in it? If you haven’t experienced this personally, think of a hobby you enjoy doing. Now imagine someone offered you $50,000 a year to do this hobby professionally. All of a sudden that thing you enjoyed doing loses its fun factor and now becomes an obligation, something you have to do. Be mindful of what you are sacrificing when entering market norms. While money is nice, social relationships are the key to our happiness and belonging. Can you think of a time that you transitioned a relationship from social norms to market norms? What were the results? Share your stories in the comments below and follow the blog for more matter.