This article is an excerpt from the Shortform book guide to "Predictably Irrational" by Dan Ariely. Shortform has the world's best summaries and analyses of books you should be reading.
Like this article? Sign up for a free trial here .
What are the two main norms of society? Why is it damaging to introduce market norms in a friendship? How is it beneficial to introduce social norms in the workplace?
There are two main norms of society: social norms and market norms. Social norms are requests made by friends or family, and market norms are transactional obligations. Mixing the two societal norms can have unexpected outcomes.
Keep reading for more information about the norms of society.
Navigating Social and Market Norms of Society
We all operate within two norms of society simultaneously. The first set of norms are social norms—requests are made and obliged because of the human need for connection and community. These requests look like asking a friend to help you move, or cooking a big meal for your family. These social transactions have three key parts:
- They provide pleasure for both parties.
- There isn’t a need for immediate “compensation.”
- Compensation isn’t monetary—it’s a reciprocal act of connection or community, such as inviting your neighbor for dinner to thank her for mowing your lawn.
The second set of societal norms are market norms—requests are made and obliged because they are expected and enforced. These transactions look like a tenant paying their landlord rent, or an employer paying their employee’s wages. The key parts of market transactions are directly opposite those of social transactions:
- They’re not necessarily for pleasure.
- There’s a need for immediate compensation.
- Compensation is monetary—non-monetary compensation is considered inappropriate.
Usually, you’ll keep these two worlds separate—you wouldn’t offer your friend payment for the dinner they cooked for you, or pay your employee with home-cooked meals instead of money. However, these two worlds occasionally mix—and the blurring of the two often creates irrational and unexpected outcomes. Sometimes, this will be to your advantage, but other times it can seriously damage pre-established relationships.
First, we’ll discuss an experiment that explains how our mindsets change when shifting between social and market norms. Then, we’ll explore the various ways that the blurring of these norms can affect your relationships in unexpected ways.
Experiment: How Norms Drive Work Ethic
Part 1: Monetary Compensation
Three groups of participants were tasked with dragging an image of a circle into the image of a square on a computer. They were instructed to drag the circle into the square as many times as they wanted in the experiment’s 5-minute span. Each group received a different payment:
- Group A received $5 for their participation.
- Group B received between 10 and 50 cents for their participation.
- Group C was not paid—instead, they were asked to participate as a favor.
The results showed that on average, Group A performed significantly more circle drags than Group B—this tells us that under market norms, people will work harder when their payment is higher, as we might expect. However, the results also showed that the unpaid Group C dragged more circles than both paid groups. This reveals that people operating under social norms will generally work harder than those operating under market norms.
Part 2: Non-Monetary Compensation
The participants were asked to perform the same task but would receive small gifts instead of monetary compensation.
- Group A received a box of chocolates worth $5.
- Group B received a candy bar worth 50 cents.
- Group C was asked to participate as an unpaid favor.
Under these new conditions, the results showed that all three groups put an equal amount of effort into the task, matching the effort of Group C from the experiment’s first part. These results suggest that gifts as compensation stay within the social norms that drive a higher work ethic.
Part 3: Non-Monetary Compensation Attached to Monetary Ideas
The participants were given the same task and again offered small gifts as compensation. This time, the experimenters told participants how much their gift was worth—Group A was told that they’d receive a 5 dollar box of chocolates, and Group B was told that they’d receive a 50-cent candy bar.
The results showed that those who received the more valuable box of chocolate worked significantly harder than those who received the chocolate bar—in other words, they acted the same way as participants who were compensated with money. These results suggest that the mere mention of monetary value is enough to push us out of social norms into the world of market norms.
Imposing Market Norms on Social Relationships
You should be careful when introducing market norms to social relationships because doing so causes social norms to disappear—often harming the social relationship, sometimes permanently.
A great example of this is a daycare that was having problems with parents regularly arriving late to pick up their children. They rationally—but mistakenly—assumed that this problem would be solved if they charged a small fee for late pick-up.
Under the previous social norms, the parents were motivated to get to the daycare on time in order to avoid the embarrassment of inconveniencing their children’s caretakers. However, once the daycare introduced a monetary fee, replacing the established social norm with a market norm, the number of late pick-ups increased significantly. The parents now felt that they were paying for the right to pick up their child late and were no longer motivated by the social obligation to be on time.
Realizing their mistake, the daycare removed the fine—but the damage was already done. The social norm no longer existed, and the high number of late pick-ups continued.
Why Corporations Should Avoid Social Norms
Another area where you’ll commonly see problems with the mixture of market and social norms is in businesses that market themselves as a “friend” of their clients. These businesses work hard to create a relationship that appears to operate on social norms. While this might have the short-term benefit of capturing the client’s trust, it’s a mistake. Because corporations and their policies inherently operate under market norms, they’ll frequently need to impose those market norms on the social relationships they’re constructing, violating the relationships irreparably.
For example, a car insurance company that’s branded itself as your “partner” may need to deny your claim and put you out thousands of dollars. By doing so, they’ve violated a serious social boundary—instead of sticking to the non-monetary, favor-based relationship in line with their image, they’ve imposed a financial transaction on your relationship. This permanently damages their relationship with you, who will never again think of them as a “partner” who has your best interests in mind. Their reputation as a trustworthy company is further tarnished when you tell people about your poor experience.
Imposing Social Norms on Market Relationships
While imposing market norms on social relationships usually has a damaging outcome, imposing social norms on market relationships usually has a positive outcome. Money is the most expensive, but least effective, way to get people to do what you want. Instead, you should focus on cultivating social relationships and establishing social norms—as the circle-dragging experiments revealed, social norms lead to more effective work, for a much cheaper price.
This idea is applicable on a small scale—you know it makes sense to ask a friend to help you move as a favor, instead of paying up for professional movers. Your friend will likely work as hard as—or harder than—the movers, and you’ll save a good deal of money. The idea is also applicable on a larger scale—as an employer, you can create a more effective workplace by imposing social norms on the way you compensate your employees.
Navigating Social Norms With Employees
While it may feel more rational to focus on market norms in relationships with your employees, it’s more effective to create a sense of social norms. Creating social norms within your workplace taps into the sense of purpose, motivation, and loyalty that employees feel toward their work. They’re willing to work harder when they feel a sense of security in their job and can trust that their employer will help them in hard moments. You can establish social norms and this sense that you are a partner to your employees in several ways.
One way is to make sure your employees have robust medical benefits, but this can become expensive, and at times blurs market and social norms dangerously. For example, if your medical plan requires high deductibles or the amount of money you’re putting into medical benefits appears on your employees’ payslips, the benefits no longer feel like a favor or perk.
Another way to cultivate social norms is to offer your employees gifts instead of money—these can be small and personal, like a subscription box of their favorite teas, or much larger, like a week-long trip in a sunny location. However, while gifts will keep you safely in the realm of social norms, the costs will eventually start adding up in a big way.
The best—and cheapest—way to cultivate social norms in your workplace is to foster excitement and purpose for the work. When people feel that carrying out their purpose is a type of compensation in itself, they’re more willing to overlook a low monetary salary. This can work very well for startup companies—often, they aren’t able to pay their employees a high salary from the beginning. Instead, they should focus on creating excitement around the idea of building a product together. This can look like regularly reporting positive customer reviews of the product, or putting time aside every week to acknowledge the above-and-beyond work of excelling employees.
If you’re interested in cultivating social norms with your employees, it’s crucial that you commit yourself to the work and maintain social norms at all costs. Otherwise, if you decide to violate social norms in favor of market norms, you’ll inevitably and permanently damage your social relationships with your employees. Once your employees feel that they don’t have a social relationship with you—and thus aren’t bound by the ideas of loyalty and commitment—they will look toward market norms to make the most beneficial decisions for themselves. This may lead to losing a good employee or being forced to give an employee a steep raise in order to keep them on your team.
———End of Preview———
Like what you just read? Read the rest of the world's best book summary and analysis of Dan Ariely's "Predictably Irrational" at Shortform .
Here's what you'll find in our full Predictably Irrational summary :
- How logic is failing you on a daily basis
- How to identify your irrational behaviors
- Why getting something for free can cause you to make bad decisions
