Why Bankers Would Rather Work for $0.00 Than $500K

[TacticalPeek]

Why Bankers Would Rather Work for $0.00 Than $500K
17th April 2009, 09:50 am

Sometimes asking someone to do something for nothing is more powerful than paying them.

In a research paper entitled “Effort for Payment: A Tale of Two Markets,” James Heyman and I that people are willing to help move a couch or perform an experiment just by being asked. Moreover, these individuals feel good about their “gift”. Most interestingly, the experiments show that contrary to standard economic theory, paying a small incremental incentive does not increase effort, but actually lowers it — because meager compensation profanes the gift effect and disincents the giver.

Bringing money into the relationship takes the giver’s work out of “gift” market, and brings it into the “pay-for-effort” market. When it was done for nothing, the protagonist was a “donor.” When small money was on the table, he or she became an underpaid employee. The easiest way to think about this is to imagine if at the end of Thanksgiving dinner you asked your mother-in-law how much you owed her for cooking such a wonderful meal. Would that increase or decrease her effort the next time you came by? (Assuming, of course, she would still invite back you after such an insult.)

In this financial crisis, there has been much discussion about banker’s pay. We think that if President Obama had asked for a group of bankers to take $0, and paid expenses only, it would have brought the discussion back into the gift economy. $500,000 is just low enough to bruise the banker’s egos (after all, they got used to much higher salaries for a long time, higher salaries we can be pretty certain they feel they deserved), but $0 is something to be proud of! In fact, paying these CEOs nothing might remind them about the responsibility they have to the banks they are leading and to the rest of society. The CEO of AIG Ed Liddy is already only taking a one-dollar salary and donating his time to this worthy effort. But his gift is isolated, a drop in the bucket — not part of an overall “corps” of senior financial executives acting in unison to help fix the mess.

(more)
http://www.predictablyirrational.com/?p=397&date=1



Dan Ariely is the James B. Duke Professor of Behavioral Economics at Duke University, a visiting professor at MIT’s Media Laboratory, and a founding member of the Center for Advanced Hindsight.

[marketcrazy1]

1. Ed Liddy gets a dollar a year???

does`nt his contract include an "undisclosed stock package" and a performance bonus provision for 2010??? not quite a dollar a year...................

[Wapsie B]

2. $0 a year in salary but a 7-figure bonus is hardly working for nothing.

It's merely creative accounting.

[enlightenment]

3. Too bad. He lost me at 'disincents'.

If an academic has to resort to stupid jargon because his vocabulary is so deficient, I have to wonder about the quality of the research he conducts and conclusions he reaches.

Not to mention the horrific 'it was' switch in the second paragraph. When WHAT 'was' done? Is he referring to the action taking place - in the present - in the first sentence? The 'it was' isn't referencing that - is it?

The third paragraph is largely incomprehensible.

I understand that there is a point in there, somewhere, and it might be a relevant one. Hard to tell.

My twenty year old students' write about as clearly as this PhD. sigh.

[NashVegas]

4. Right

None of these men are taking $0 to help others make millions and billions. They're in it for the bonus, not the altruism. Get real.

[zbdent]

5. then they qualify for welfare benefits ...

no income ...