Don't you believe it: 'Financial incentives boost performance'

Social scientists have known that this isn't the case for decades, but have failed to get the message across to business. Here is the story.

by Alastair Dryburgh
Last Updated: 09 Oct 2013

Cognitive psychologist Karl Duncker devised the so-called candle problem in the 1930s. You are given a candle, a book of matches and a box of drawing pins, and have to fix the candle to the wall so that it will burn without dripping wax. Most people work out fairly swiftly that the way to do it is to take the drawing pins out of the box, pin it to the wall and stand the candle in it.

Two groups were given the problem. The first group were told the experimenters just wanted to time them to establish norms for the task. The second were given an incentive - the fastest 25% got $5 and the fastest person that day got $20. (These were substantial sums back then.) Guess what? The incentivised group took, on average, nearly three and a half minutes longer to find the solution.

Why? Solving the problem involves a tricky cognitive manoeuvre, that of overcoming 'functional fixedness'. You have to stop seeing the box as a container of drawing pins, and start seeing it as a candle stand. The effect of the incentive was to make people concentrate harder, narrowing their focus and making it harder to see around the edges of the problem.

You might argue that recent events in the banking sector - huge incentives, narrow focus - validate the findings but at considerably greater cost. So, if you think that intelligence, creativity, ingenuity and lateral thinking might have more to do with success than raw motivation, don't offer financial incentives.

- Alastair Dryburgh is chief contrarian at Akenhurst Consultants. Read more at dontyoubelieveitblog.com

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