Cognitive bias: money and social norms

Join me in this example that will make it easy for you to understand what social and money norms are.

You have just bought a house for your family. The house needs some repairs and your brother has kindly offered to help you on Sunday. After one day of work, you ask him how much you need to pay him for his help.

In many families, the brother will quickly refuse the offer. Family is Family. 

Now, let’s imagine you have just bought a house, but this time for an investment. You want to repair it to rent it right after at a very high price. You ask your brother to help you. As in the first situation, you ask him how much you need to pay him for his help. This offer may trouble your brother.

In his book Predictable irrational, Dan Ariely, Professor of behavioral economics at Duke University,  underlines the importance to make the difference between social norms and market norms.

Combining the two can create troubling situations. 

The author comments that people are happy to do things occasionally when they are not paid for them and when it is in line with their social norms (cooking a special meal for your kids, inviting your girlfriend to a nice restaurant…). In such situations, paying people a small amount of money can affect negatively their work and motivation. 

In the first case, if your brother was paid a small amount of money to help you repair your family house, he may be offended and be much less motivated than if he was doing it for free.

The second case will create another uncomfortable situation by mixing market and social norms. The house is an investment which should be profitable according to the market norms. However, helping your brother belongs to social norms.

A combination which can be a source of conflict in many families!