Social norms apply to the things that we do for people without a consideration of monetary worth. We are often openly generous to our family and friends and we give our time and apply our skills and capabilities to help our inner circle (and sometimes our outer circle) with scant regard for the time and effort given. We do these things because we also get pleasure from doing them. It feels good to do things on a volunteer basis. Under this condition, we remain in control of what we are willing to do and what we are not willing to do. In addition, we generally only volunteer to do things that we have the full competence to do and so we can do things cheerfully and confidently. We feel good from fulfilling a useful need. We usually only volunteer on a limited basis, which means that we can commit to helping someone fully. If we get out of our depth, then it’s easier to back off and say that we don’t want to go any further. Reasonable people will not ask more of us and will feel grateful for the effort given. Volunteering feels good when we have a large measure of control over what we will do and what we won’t do, when we do things that we are competent at, and when we can easily escape if things get difficult.

Volunteering efforts for our inner circle often implies inherent, but unspoken, reciprocity. We help each other out because we hope (or expect) that the other persons will do something for us. It doesn’t have to be immediate and it doesn’t have to involve an equal amount of effort, but we do expect that people will feel grateful and reciprocate in some form, at some point. We tend to get along best with people who return favors and who equally match our commitment to a relationship. It’s a vague state of affairs and people have different interpretations of fair returns, but by and large, we are content to remain with those people who match us. Those who don’t are perceived as takers, who don’t play fair and will eventually end up excluded, if they continue in that way.

Volunteering efforts for our outer circle are usually done just for the feeling of satisfaction that comes from helping other people. The relationships involved are not expected to be reciprocal. We are usually content just to be treated with gratitude and respect for our efforts.

Market norms apply to the things that we do for people with a consideration of monetary worth. We enter into an agreement (sometimes unspoken) whereby we exchange time and ability for a financial return. This places an absolute value upon our worth and, for unique transactions, it cuts off the expectation of reciprocity and added returns or rewards over and above the monetary value of the transaction. Working for money creates obligation, it reduces the control that the worker has, and it makes it difficult for the worker to evade difficulties.

Working for money places a definite value on a person’s time and ability and if it’s low, then it’s disappointing. If it’s high, then it can feel good for a while, but we always know that more money could be paid, if the other person was more generous.

In the book, ‘Predictably Irrational’ by Dan Ariely, details are given of experiments carried out to test how people behave when working for money, how they behave when they volunteer to do work and als how people respond to gifts. The tests involved carrying out a simple exercise on a computer where participants were asked to drag a circle from one side of the screen into a box on the other side of the screen. When completed successfully, the circle disappeared and a new one appeared. The participants were given five minutes to do this as many times as possible and to give a measure of their productivity.

One group was paid 5o cents, one group was paid $5 and one group was paid nothing, but asked to volunteer. The group that was paid $5 was over 50% more productive than the group paid 50 cents - that’s not so surprising, but the volunteer group was almost 70% more productive than the lowest paid group and 6% more productive than the highest paid group! This is a powerful example of what happens when social norms are replaced by market norms. Those paid 50 cents did not feel valued and so did not perform very well.

The experiment was then repeated using gifts instead of money. A 50 cent chocolate bar, a $5 box of chocolates and no gift at all were used and this time the productivity results were all at the highest level previously seen from the volunteers (within a couple of percentage points). This shows how gifts keep things in the domain of social norms and people respond accordingly.

Next the experiment was repeated only this time the participants were told the value of the gifts. This time the productivity levels matched the original experiment. The 50 cent chocolate bar was considered of low worth and productivity dropped right off again. Mentioning the monetary value brought market norms back into the frame. It seems that people will work for a fair wage and people will work for free (if it’s a short-term activity) but no one wants to work for low pay.

As Dan Ariely writes, “We live in two worlds: one characterized by social exchanges and the other characterized by market exchanges. And we apply different norms to these two kinds of relationships. Moreover, introducing market norms into social norms hurts the relationship. Once this type of mistake has been committed, recovering a social relationship is difficult. ”

I experienced this very thing quite recently. I had recently developed a friendship with a guy and we seemed to have a lot in common. He invited me to join him at his very pleasant holiday home and I went there for a few days. He hasn’t worked for a while and has been living off of savings so I knew he was hard up for cash. Consequently, I made sure from the outset that we agreed on what I should contribute to running costs and expenses. We had a good time and got along well. We even talked about business and how he might be able to use some of his specialist skills to help me. In the end, I didn’t spend as much as I had budgeted for and so I gave him a generous gift of some money. Having read Dan Ariely’s book, I can now see that this is where things started to go wrong. The use of money introduced market norms to the relationship.

A few days after my return, I asked him to help me out with a technical problem on my server. I considered it a minor problem but I didn’t have the expertise to do it. I asked my friend to help out. He came back saying what he would do and what his hourly rate would be. I asked him to check what the problem was first and to define clearly what the solution would entail. He bristled at this because it implied that I didn’t trust him. I explained that I didn’t want to get into an open arrangement of paying an hourly rate as I did not know what I would be letting myself in for and that was just plain good sense and not an issue of trust.

In the end, he checked the problem and couldn’t fix it. He said that it took him twenty minutes to do this. I had previously stated that if it took him less than an hour to fix it then I would pay him a full hour’s rate. Although he didn’t fix the problem, I offered the fee again. To be honest, in view of the fact that I had given him a cash gift equivalent to 10 times his hourly rate and that he had only spent twenty minutes and not solved the problem, I expected him to waive the fee. He didn’t and so I paid it and I was disappointed. I didn’t know it but market, norms had now come into full play and the implied reciprocity of social norms that accrued in the beginning of our friendship now faded away.

Things got worse when he recently demanded ‘a loan’ five times what I had previously given him as a gift. He claimed that he was desperate and had no one else to turn to but I very much doubted that. I told him that I didn’t have that kind of cash to spare. Later he came to me again, with another demand disguised as a desperate plea. Again I refused him and he then asked me to find someone to lend money to me, in order that I lend it to him. This was pretty bizarre behavior and the element of money involved meant that I totally discounted the social norms that had previously existed and now viewed the relationship almost entirely from market norms. I considered the value of money involved, the element of risk involved with lending money to someone with no income, the hassle and work that I would have to do on his behalf and the fact that I would receive no financial benefit from this transaction at all. The market norms made it clear that this was a ‘no dice’ situation. Another friendship bites the dust.

Now that I know about social and market norms, I will be very careful about ever considering to do business with good friends, and also about introducing monetary worth into anything that I do with friends. I’ll be generous with gifts, but I’ll remain very reluctant to ever give money.

What’s your experience with mixing social and market norms, either with your inner circle, or at work?

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