Bankers’ Bonuses and Brain Biology

1 February, 2011

Back in September 2010, we did a post about John Stacy Adams and Equity Theory.  Here are some edited highlights, as a primer:

Equity Theory in a Nutshell

Adams considered the comparisons we make between the outcomes we get (through reward such as pay) and the work we contribute:  the ratio O/W.

You unconsciously compare your own ratio (O/W) with my ratio, as you perceive it (O’/W’).  If you find that they are equal, you will be content.  If, however, my ratio is bigger than your ratio, you will be unhappy –you will perceive an ‘inequity’.

It is also the case that if you think you are over-rewarded, then you will probably feel a sense of guilt.  Our innate need for fairness is what drives Adams’ ‘Equity Theory’.  He argued that where we feel a sense of inequity, we respond in a way that will, in our minds, remove the inequities.

Why so Fair?

Is our sense of fairness a result of social or cultural pressures, or is it the way we are wired?  Four researchers at Caltech and Trinity College Dublin became the first to glean definitive evidence into this particular nature versus nurture debate.

What they found is that our brain’s reward centres respond more strongly when a poor person gets a financial reward than when a rich person receives the same reward.  What surprised them was that this is true for the brain of the rich person as well as for that of the poor person.

Image Credit: Elizabeth Tricomi/Rutgers University
Dr Tricomi was the principal author of the research paper

‘People who started out poor had a stronger brain reaction to things that gave them money, and essentially no reaction to money going to another person,’ Professor Colin Camerer says. ‘By itself, that wasn’t too surprising.’

What did surprise the team was that people who started out rich had a stronger reaction to other people getting money than to themselves getting money. ‘In other words’ said Camerer, ‘their brains liked it when others got money more than they liked it when they themselves got money.’

So what happened to good old self interest?

Clearly the results appear fly in the face of self interest, so how does the team explain them.  They think that it is about reducing discomfort – seeing a poor person getting a reward goes some way to allaying a little of our own guilt.

So will bankers give away their bonuses?

Maybe some will, but perhaps the guilt of discomfort has a value.  That’s something the experimenters did not measure, and until they do, we will never know what it takes to make a more equal society.

Which brings us back in a roundabout way to the vexed question of nature versus nurture.  We now know that something of our sense of equity is wired into the way our brains work.  What we don’t know is whether that wiring took place because of our genetics or our experiences.  So let’s speculate, based on two observations:

  1. There would seem to be real evolutionary advantage for a social creature living in small groups to develop a sense of fairness that guides its decisions
  2. There are plenty of opportunities in our present society for a sense of equity to be over-written by self-interest in our formative years, yet it seems to persist.

I say: chalk this one up to nature!

Learn More

You can read a far fuller summary of the research at the Caltech website, or, if you have a mind to, you can read the full paper that was published in the journal Nature (25 Feb 2010).

Some Management Pocketbooks you might enjoy

The Motivation Pocketbook

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