Labor & Employment Law

Social Norms and Market Norms -- Using Behavioral Economics in the Workplace

Employers, managers, and employees can learn a lot about their workplaces from Dan's Ariely's fascinating new book Predictably Irrational: The Hidden Forces that Shape Our Decisions. 

One of the insights gleaned from the empirical psychological studies that he reviews is that we all maintain two separate and distinct moral systems -- i.e., the "social norms" which apply to inter-personal relationships and the "market norms" which apply to the self-interested quid pro quo of the marketplace.  As Ariely explains, much of the hard feelings between companies and their customers and employees can be traced to different expectations about which system is in play.

For example, the trend in the last few decades has been for Companies to characterize themselves as participants in a warm and fuzzy "relationship" using terms that invoke images of family, friendship, partnership, and team cohesion.  To the extent employees buy into this "social relationship" model the Company stands to reap major dividends in the form of loyalty, hard work and dedication which can be purchased without  monetary incentives. 

But the downside is that any failure by the Company to live up to its end of this perceived social contract will not be seen as a mere business decision but as a personal betrayal and disloyal "stab in the back."    

What's the upshot? If you're a company, my advice is to remember that you can't have it both ways.  You can't treat your customers [or employees] like family one moment and then treat them impersonally--or, even worse, as a nuisance or a competitor--a moment later when this becomes more convenient or profitable.  This is not how social relationships work.  If you want a social relationship, go for it, but remember that you have to maintain it under all circumstances.          

Ariely is definitely on to something.  And this disconnect between "social" and "business" norms may go a long way toward explaining why employment litigation often has more in common with divorce court than with a commercial breach of contract.  To  paraphrase the Bard: hell hath no fury like an employee scorned.

Full post as published by California Labor & Employment Defense Blog on September 06, 2009 (boomark / email).