Carrots And Sticks

Carrots And Sticks explains how you can harness the power of incentives – carrots and sticks – to change your bad behaviors, improve your self-control and reach your long-term goals.

Richard Thaler made a fascinating discovery in 1981. In a study he did, he asked people to choose whether they’d like to receive one apple in one year, or two apples in one year and one day.

Of course, most people chose the second option – who cares about an extra day when you have to wait for a year anyways, right?

However, when he gave them the same choice in the present, namely getting one apple today or two apples tomorrow, the vast majority opted for the immediate reward.

That’s because when making decisions about the near future, we hate uncertainty. As soon as an instant reward is made available to us, all bigger rewards become less attractive, if we have to hold out a little longer for them.

“Many things could happen in those 24 hours, who knows if you’ll even get any apples at all, so better be safe and take what you can get right now,” your brain tells you.

Waiting means uncertainty means risk of loss and boy, do we hate losing…

If you give monkeys the option between two slices of an apple with a 50% chance of one being taken away and one slice of an apple with a 50% chance of getting another one, they’ll always choose the second option. Even though the outcome is exactly the same, they’d rather not have something and then lose it, so they never even take the risk.

We hate losing a lot more than we like to win, which is one of the main reasons that there are so few millionaires. Winning big entails risk and that alone keeps most people in their  comfortable salary jobs.

However, there are some things we’re very much willing to lose – everything we don’t yet have. While this is the reason that most people don’t save nearly enough for their retirement (why take money out of your paycheck today for something that might never happen?), Ian Ayres says we can also turn this into an advantage.

He created a saving program called “Save More Tomorrow“, which encourages people to commit to saving a tiny percentage of their income, should they get a raise. Since it’s not cash they have to shell out now, most people agree, and dramatically improve their savings over time.

Once you know that we spend a lot more of our time avoiding losing than chasing the next win, you’ll also understand why sticks (=punishments) work better than carrots (=rewards). Imagine the government offered you…