Michelle: What if the best way to motivate your team isn't a bonus, but an offer to pay them to quit? Mark: Okay, hold on. Pay them to leave? That sounds like a recipe for an empty office. Michelle: And what if charging more for your product actually makes people want it more? It sounds like backwards logic, but it's the key to understanding how incentives really work. Mark: Alright, you have my attention. This feels like we're about to break some fundamental laws of business. Michelle: We are. And that's exactly the world we're diving into today with Uri Gneezy's book, Mixed Signals: How Incentives Really Work. Mark: Uri Gneezy... he's a big name in this space, right? One of those behavioral economics pioneers. Michelle: Exactly. He's the guy behind that famous daycare study where fining parents for being late actually made more of them show up late. He's built his career on these real-world experiments that show how human psychology completely messes with traditional economic theory. Mark: Right, so he's not just an armchair philosopher. He's out in the wild, testing this stuff. I like that. It all starts with a very human, very relatable moment of questionable parenting at the happiest place on earth...

Michelle: It does. Gneezy tells this story about taking his son, Ron, to Disney World. At the ticket booth, there's a sign: kids under three are free, but three and over pay the full price, which was a hefty $117. Mark: I see where this is going. Michelle: Ron had just turned three. But when the cashier asks, Gneezy, a world-renowned economist, looks at the smiling Disney employee and says his son is "almost three." He saves the $117. But later that day, his son confronts him. He says, "Papa, you taught me we should always tell the truth. But you lied today." Mark: Ouch. That is a direct hit from a three-year-old. What does Gneezy even say to that? Michelle: He tries the classic parent move: "Do as I say, not as I do." But it's useless. The damage is done. And Gneezy has this epiphany: talk is cheap. He can preach honesty all day, but the $117 incentive made him act differently. His actions sent a signal that was much louder and clearer than his words. The signal was: sometimes, lying is worth it. Mark: Oh, I've been there. Maybe not Disney, but definitely fudging an age for a 'kids eat free' deal. It feels harmless, but Gneezy's point is that the signal is the problem, right? It’s not about the money, it’s about the message. Michelle: Precisely. The incentive isn't just the financial transaction; it's a piece of communication. It tells a story. And if you don't control that story, it can completely backfire. It's like that classic Seinfeld episode where Jerry gives Elaine cash for her birthday. Mark: I remember that! She was so offended. "Cash? What are you, my uncle?" Michelle: Exactly! The monetary value was high—$182. But the signal it sent was terrible. It said, "I couldn't be bothered to think about you, so here's some money." It was impersonal, low-effort. Meanwhile, Kramer gives her a bench she wanted. The bench probably cost less, but the signal was, "I listened to you, I care about you." That's the difference between a good signal and a bad one. Mark: Okay, but a company isn't a friend. Isn't cash king? Why did Coca-Cola's plan to charge more on hot days fail so spectacularly? That's just supply and demand. Michelle: Because they failed to control the story. Back in 1999, the CEO of Coke floated this idea of vending machines that would raise the price of a soda on a hot day. From a purely economic standpoint, it makes sense. Demand is higher, so the price should be higher. Mark: Right. People are thirsty. They'll pay. Michelle: But the public reaction was outrage. The story wasn't "dynamic pricing." The story was "Coca-Cola is exploiting us when we're hot and desperate." The incentive sent a signal of greed. Now, think about this: what if they had framed it differently? What if they had announced, "On cold days, we're giving you a discount"? Mark: Huh. It's the exact same outcome, but the story is completely different. One is a penalty, the other is a reward. Michelle: And that's the core idea. The incentive itself is neutral. The story you wrap around it, the signal it sends, is everything. And when that signal gets mixed, you get chaos.

Michelle: That Coca-Cola example is the perfect transition, because they sent a classic mixed signal. Their brand says "happiness and refreshment," but the incentive screamed "cynical exploitation." This happens everywhere, and the results can be hilarious... and disastrous. Mark: Give me the highlights. The hall of fame for bad incentives. Michelle: Let's start with the workplace. A manager at a call center tells her team, "Our number one value is excellent customer care." But then she announces the new bonus system: it's based on the number of calls each employee handles per hour. Mark: Oh no. I can see it already. Michelle: What happens? The employees start rushing through calls. If a customer has a complicated problem that's going to take time, they "accidentally" get disconnected. The employees are just responding to the incentive. The signal isn't "care for the customer," it's "get them off the phone as fast as possible." Mark: That's incredible. It's like telling a kid to clean their room, but you only check if the floor is clear. So they just shove everything into the closet. The incentive created the mess. Michelle: It's a perfect analogy. And it gets even more absurd. My favorite example is from the old Soviet Union. A state-run glass factory paid its workers based on the weight of the sheet glass they produced. Mark: Based on weight? So... they made really heavy glass? Michelle: They made glass so thick and heavy it was practically opaque. It was useless as windows. So the central planners, in their wisdom, realized their mistake and switched the incentive. From now on, they would pay based on the square meters of glass produced. Mark: Let me guess. They started making paper-thin glass. Michelle: So thin it would shatter during transport or if a bird flew too close! They just swapped one problem for another. This is what happens when you incentivize one dimension—quantity—at the expense of all others, like quality. Mark: It’s a pattern. You get exactly what you pay for, even if it’s not what you want. Michelle: And this gets really dangerous when the stakes are higher. Look at the Wells Fargo scandal from a few years back. The company mantra was "Eight is great," meaning every customer should have eight different Wells Fargo products. The incentive for employees was a bonus for hitting that target. Mark: And the result? Michelle: The result was that employees, under immense pressure, opened millions of fake bank and credit card accounts in customers' names without their knowledge. They were just responding to the incentive. The signal from the top wasn't "build lasting customer relationships." The signal was "hit the number, no matter what it takes." It was a catastrophic mixed signal that cost the company billions and destroyed public trust.

Mark: Okay, so we've seen a lot of disasters. It feels like incentives are just landmines waiting to go off. How do we actually use them for good? How do we fix these problems instead of just creating new ones? Michelle: This is where Gneezy's work gets really brilliant. He argues that we can use incentives not just as a solution, but as a diagnostic tool. Like a scalpel to find the real problem. He points to the PISA test, the big international exam that compares students' academic abilities across countries. Mark: Right, the one the US always seems to do poorly on. Michelle: Exactly. And for years, the narrative has been that US students are falling behind, that our education system is failing. The assumption is that the test scores reflect ability. But Gneezy and his colleagues wondered: what if the problem isn't ability, but effort? Mark: How would you even test that? Michelle: With an incentive. They went into high schools in the US and in Shanghai, one of the top-performing regions. They had students take a PISA-like test. But for one group, they offered a financial reward for every correct answer. Mark: And what happened? Michelle: The scores of the Shanghai students, who were already trying hard, barely changed. But the scores of the US students shot up dramatically. The incentive didn't magically teach them math. It just motivated them to try. It revealed that the problem wasn't a knowledge gap, it was a motivation gap. Mark: Wow. So we're not necessarily worse at math, we just... can't be bothered? That's a completely different problem to solve. It changes everything. Michelle: It does! And once you correctly diagnose the problem, you can design these elegant, counterintuitive solutions. Take the company Zappos, famous for its customer service. To make sure they only hired truly motivated people, they came up with a radical plan. Mark: Don't tell me... Michelle: After a week of training, they offered every new hire $2,000 to quit. Mark: Pay them to quit? Why on earth would that work? That sounds insane. Michelle: Think about the signal. Anyone who is just there for a paycheck, who isn't truly committed to the company's culture, is going to take the easy money and run. But the people who turn down the $2,000? They have just sent an incredibly powerful and costly signal that they genuinely want to be there. They've self-filtered. Mark: So the act of rejecting the offer becomes the real incentive. It strengthens their own commitment. That's fascinating. It's like they're buying into the company's story with their own potential cash. Michelle: Exactly. It aligns everything. The company's goal is a passionate workforce, and the incentive structure guarantees that's what they get. It's a clear signal, not a mixed one.

Mark: So, when we're thinking about motivating someone—an employee, a customer, even our own kids—the question isn't just 'What's the reward?' Michelle: Exactly. The real question, the one Gneezy forces us to ask, is, 'What's the signal?' What story does this incentive tell? The $117 at Disney told Gneezy's son that money was more important than honesty. The Soviet glass factory's incentive told workers that weight was more important than function. Mark: And the Zappos offer told employees that commitment was valued above all else. The signal is the incentive. Michelle: It is. It’s the hidden language that dictates our behavior far more than we realize. And once you start seeing it, you can't unsee it. You start analyzing every system, every reward, every rule. Mark: It makes you look at everything differently. The way your company bonuses people, the way schools grade students, even why you feel a little weird when someone gives you cash for your birthday. Michelle: It really does. So the question for our listeners is: what's one incentive in your life—at work or at home—that's sending a mixed signal? And what story is it really telling? Mark: Think on that. Michelle: This is Aibrary, signing off.