According to economist Dan Ariely “we live simultaneously in two different worlds— one where social norms prevail, and the other where market norms make the rules.“

Each of these worlds has its own set rules which are perfectly illustrated by the following surprising example:

Consider an example from the Israeli city of Haifa in the 1990s, where day-care centers typically closed at 4:00 p.m. Parents rarely came late to pick up children; they understood they would be imposing on the teachers. Still, it happened often enough, and it tended to be the same people. An economist named Uri Gneezy persuaded six day-care centers to announce that parents who came late would be fined. He then compared the results with four centers that continued to operate on the honor system. What happened? Late pickups roughly doubled at centers that punished late arrivals: parents facing a fine were more likely to come late. Parents felt they could purchase a few extra minutes to spend at work or the market or the gym. They didn’t need to feel guilty, because they had paid. And the shift in behavior outlasted the policy: parents continued to come late even after the fines were eliminated. A social norm had been replaced by a transaction.

Appelbaum, Binyamin. The Economists’ Hour

Another example comes from a research paper by Dan Ariely, Uri Gneezy and Ernan Haruvy. The researchers offered Lindt truffles to people who worked at the MIT Media Lab. They were offered the truffles from a full plate of 50 under one of two situations: (1) a small payment of 1¢ for each truffle or (2) as many as they wanted for free. The results were fascinating:

Free Truffle Condition: “Of the 20 participants in the free condition, 11 took only one truffle, eight took two, and one took three.” Thus, where the truffles were free, people felt as if it wouldn’t be right to take more than one or two. People felt limited by social norms.

Penny Truffle Condition: “no one took just one or two; in the 1¢ condition, the lowest number of truffles taken was 6.” The average number of truffles take was 30! So, even a tiny payment changed the rules of the game. With a payment, people now made decisions based on economic norms which means that with a low price there is high demand.

Consider another example that is hypothetical. Assume on a Saturday afternoon you get a call from a good friend who lives down the street. He wants to know if you can help him move a piece of furniture from one room to another. You gladly agree to help and when you are done moving the furniture he pulls out a $5 bill and hands it to you and says “thanks for your help.” I think most of us would feel a bit offended to be offered $5 to help a close friend move a piece of furniture. We were glad to help for free because we’re friends and that’s what friends do. Being offered money to help move cheapens the relationship by changing the help into an economic transaction from a social one. On the other hand, if the friend says “thanks for your help – join me in having a beer” we aren’t offended. Offering a beer for a favor is in line with social norms.

What does it all mean? Pay attention to where social norms exist vs. market norms. Realize that if you have a social norm it can easily be transposed into a market norm, which may not be what you want. In the words of Dan Ariely: “when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish. Once the bloom is off the rose— once a social norm is trumped by a market norm— it will rarely return.”

This reminds me of when my daughter Audrey played soccer. A friend had offered his daughter $10 for every goal she scored and she responded by scoring 3 goals in the next game. I decided to make the same offer to Audrey – $10 per goal. She got very upset with me, saying “soccer is mine but if you pay me it will become yours, don’t ever offer me money for playing sports again.” Even as a sixth-grader she understood the differences between social and market norms!