Social norms versus market norms


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There’s a NY Times article today that talks about AT&T’s new pricing plan (which we wrote about last week here). In the article, a reference is made to a well known study in behaviorial economics by Uri Gneezy and Aldo Rustichini about a set of Israeli day-care centers which started fining parents who were late in picking up their kids. The problem was that the fine was so low (about $3 per occasion) that it backfired: late pickups actually rose, apparently because the new incentive (a cash fine) was weaker than the old incentive (the guilt of being late).

The story about the day care centers is actually quite interesting. Originally, the daycare centers relied purely on social norms to ensure that kids would be picked up on time. If for some reason parents were late for pick-up, their guilt compelled them to be more prompt in picking up their kids in the future. Once the fine was imposed, the daycare center replaced social norms with market norms. Now that the parents were paying for their being late, they made market decisions on whether to be on-time or late. Again, at $3 per occasion, more and more parents weighed the benefits of convenience (and began to pick up their kids whenever it suited them) versus the required payment. One can see how this could turn out bad.

The most surprising thing about the story is that when the daycare center removed the fine (and presumably went back to social norms), the behavior of the parents didn’t change for a long time (in fact, there was a slight increase in the number of tardy pickups). The moral here is when social norms collide with market norms, social norms are not easy to reestablish.

Dan Ariely, a professor of behavioral economics at Duke University has a wonderful book out titled Predictably Irrational that highlights (among others) this particular study. His read on the difficultly of reestablishing social norms over market norms is this: “Once the bloom is off the rose – once a social norm is trumped by a market norm – it will rarely return.”

Here’s the takeaway. Beware of introducing market norms to situations where social norms have previously been applied. Attempting to nudge behavior through these market norms can open a Pandora’s box in ways that will be nearly impossible to overcome.



Republished with author's permission from original post.

Patrick Lefler
Patrick Lefler is the founder of The Spruance Group -- a management consultancy that helps growing companies grow faster by providing unique value at the product level: specifically product marketing, pricing, and innovation. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.


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