I hope to teach my students that economics is more than money, finance or studying the latest economic crisis. We must also understand the underlying human behavior.
Years ago, Silicon Valley companies began offering nap rooms, dry cleaning services, childcare and hair salons as perks to keep their workers motivated. Employees could even bring their pets to the office. They believed such non-monetary incentives coupled with more traditional monetary incentives – bonuses and salary increases – would help managers obtain the highest performance from staff.
Professor Joaquin Gomez-Minambres, a behavioral and experimental economist who studies personnel economics and industrial organization, says his research confirms this approach. "My colleagues and I have developed theories and conducted experiments that demonstrate goal setting, a non- monetary technique, combined with the standard carrot-and-stick approach, which is monetary, work much better when they are designed in coordination," he says. "While goal setting and monetary incentives are effective on their own, they are maximized when both are incorporated into a motivation policy for workers."
This might seem to be an obvious solution, but Gomez-Minambres says companies still struggle to find balance because employees' personalities are vastly different. Low ability workers (for whom goals are likely to be challenging) are often more motivated by non-monetary goals, such as a company with a production goal for a certain day. "If the manager says the daily goal is to produce 10 units, low-ability workers respond to that," he says. However, that same company will have high-ability workers who are not motivated by goal setting.
Gomez-Minambres' secondary line of research attempts to understand the temptation and self-control impulses of consumers. "This research introduces the concept of menu dependent emotions – those feelings that arise when individuals forgo consumption opportunities from menus. Consider the consumer who has to decide between eating lunch with cake or lunch without cake. According to his restraint, or self-control preference, the consumer wants to eat lunch without cake. However, according to his temptation preference and immediate satiation of cravings, the consumer wants to eat lunch with cake. Therefore, each possible decision (to eat or not eat cake) creates unfulfilled preferences (or emotions). As a result, the desserts' list in a restaurant's menu can create emotions and hence will affect preferences and future consumption decisions in a predictable way," he says.
To Gomez-Minambres, economics is about how people make choices, and the theories that he's working on imply that the environment around us influences what we choose. "Mainstream theories typically have a more narrow understanding of individual psyche, and I want to incorporate psychological insights into economic models to increase their predictive power," he says. "I hope to teach my students that economics is more than money, finance or studying the latest economic crisis. We must also understand the underlying human behavior."
Posted October 10, 2013