Social norms versus market norms

There’s a weird psychological phenomenon where humans are willing to do things for free (“social norms”) but may turn away if you try to pay them for it (“market norms”).

One of the most famous examples of that was Uri Gneezy’s story of the Israeli daycare center. You can read more about it from this post, but here is a quick summary:

• A daycare center was having problems with parents picking up their children late. Most tried, but some still failed.
• To try to fix it, the daycare started charging a $3 fine if you were late. That shifted this from a social norm to a market norm; instead of “doing the right thing” and being on time, many chose to just show up late and pay the $3.
• Later, the daycare tried to reverse and eliminated the fee, but it was already established as value of $3 so it didn’t help.

In Dan Ariely’s book “Predictably Irrational“, he shares a few other stores like that, like this one from the AARP:

“A few years ago, for instance, the AARP asked some lawyers if they would offer less expensive services to needy retirees, at something like $30 an hour. The lawyers said no. Then the program manager from AARP had a brilliant idea: he asked the lawyers if they would offer free services to needy retirees. Overwhelmingly, the lawyers said yes. What was going on here? How could zero dollars be more attractive than $30? When money was mentioned, the lawyers used market norms and found the offer lacking, relative to their market salary. When no money was mentioned they used social norms and were willing to volunteer their time. Why didn’t they just accept the $30, thinking of themselves as volunteers who received $30? Because once market norms enter our considerations, the social norms depart.”

Free labor

We see this on the web quite a bit. There are moderators on sites like Wikipedia that have put in many hours of work for no pay in order to help the web become a better place, but if you offered to pay them $5 per article, that would be insulting and you’d lose their help. From the book:

“People are willing to work free, and they are willing to work for a reasonable wage; but offer them just a small payment and they will walk away.”

Donations

Another place that we see this is with non-profits trying to raise money. If they suggest a donation of $50 “which could help a child eat for a month”, people will often play into the social norm of that and give the money with nothing tangible in return.

However, if you try to spice it up and offer a t-shirt to go along with the $50 donation, it shifts into more of a market norm and the response is likely to be “$50 and I only get a lousy t-shirt?”.

That last one is the one that is keeping me on my toes a bit. It’s easy to say “we need more donations, so let’s spice it up just a little bit”, but that new spice might change the entire nature of the transaction, and even if you’re ultimately giving more, it could backfire on you completely.