In an interview on The Business of Giving podcast, renowned economist and author Uri Gneezy shared his expertise on the profound impact of incentives on human behavior. Drawing from his book, “Mixed Signals: How Incentives Really Work,” Gneezy discussed the importance of aligning incentives within organizations and avoiding common pitfalls. This article explores Gneezy’s insights, focusing on the role of incentives in shaping behavior, designing effective programs, and driving engagement in nonprofit organizations.


Uri Gneezy Professor of Economics and Strategy & Chair in Behavioral Economics at UC, San Diego Rady School of Management, and author of Mixed Signals: How Incentives Really Work

Understanding Incentives: Moving Beyond Monetary Rewards
Gneezy emphasized that incentives encompass a wide range of motivators, extending beyond financial rewards. He highlighted the daycare experiment, where the introduction of a small fine for late pickups led to unintended consequences. Parents no longer rushed to pick up their children, perceiving the fine as an acceptable cost. This experiment demonstrated the need to carefully consider the signals incentives send and the importance of understanding their impact on behavior. As Gneezy stated, “An incentive is definitely not just money. Money is just one example of incentive. There are many others.”

Designing Effective Incentive Programs: The Common Sense Approach
Gneezy discussed the common mistakes organizations make when designing incentive programs. He emphasized the need for a “common sense officer” who can assess whether incentives align with desired outcomes and organizational values. By avoiding mixed signals and incorporating common sense, nonprofits can create programs that inspire desired behaviors and drive engagement. Gneezy’s quote encapsulates this approach: “Don’t assume that you understand what is it that people care about, really try to test it.”

Balancing Self-Signaling and Social Signaling: Insights from Real-World Examples
Gneezy delved into the power of self-signaling and social signaling in influencing behavior. Drawing from experiments conducted in a Pakistani buffet restaurant and the context of blood donations, he highlighted the distinction between public signals and self-signals. In the buffet restaurant experiment, customers who placed their payments in an envelope hidden from public view tended to pay more, driven by self-signaling and a desire to feel good about their contributions. Gneezy emphasized that social signaling, such as paying in the presence of others, could diminish the positive effects of self-signaling.

The Potential Disincentive of Paid Blood Donations: Fostering Intrinsic Motivation
Gneezy also explored the potential disincentive of paying individuals for blood donations. While financial incentives might seem attractive, Gneezy cautioned that they could undermine the intrinsic motivation to contribute to a greater cause. He cited research showing that when financial incentives were introduced for blood donations, individuals became less likely to donate voluntarily. Instead, he suggested alternative forms of recognition, such as providing branded merchandise, to reinforce self-signaling and personal satisfaction. By balancing the desire for incentives with preserving intrinsic motivation, nonprofits can create a supportive environment that encourages long-term engagement and a sense of purpose.

Maximizing Engagement: Overcoming Declining Charitable Giving and Volunteerism
Gneezy addressed the challenges faced by nonprofits in the declining rates of charitable giving and volunteerism. He suggested that nonprofits should address concerns about overhead expenses by securing mega donors who cover these costs. This approach assures potential donors that their contributions directly benefit the cause they care about. Gneezy emphasized the need to understand donor motivations and preferences, focusing on what drives giving rather than attempting to educate donors about efficiency. Additionally, he advocated for A/B testing to evaluate the effectiveness of incentive programs and make data-driven adjustments.

Conclusion: Harnessing the Power of Incentives for Nonprofit Success
Incorporating Uri Gneezy’s insights, nonprofit organizations can leverage the power of incentives to drive engagement, foster collaboration, and achieve their goals effectively. By understanding the unintended consequences, aligning incentives with organizational values, using common sense, and conducting A/B testing, nonprofits can design incentive programs that inspire desired behaviors and create a better workplace environment. With a thoughtful and strategic approach, nonprofits can maximize their potential to create meaningful change and make a lasting impact in their communities.

Denver Frederick, Host of The Business of Giving serves as a Trusted Advisor and Executive Coach to Nonprofit Leaders. His Book, The Business of Giving: New Best Practices for Nonprofit and Philanthropic Leaders in an Uncertain World, is available now on Amazon and Barnes & Noble.

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