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Know Your Nuggets: Reciprocity

Editor's Note: We love behavioral principles distilled into short, easily digestible catch phrases… pithy bits of science, tiny slices of knowledge, little drops of insights. We call them “Nerd Nuggets” because we’re that kind of cool. So, to keep us all on the same page, we’ve created this ongoing series, Know Your Nuggets.

Eat up and enjoy.

Here's a secret: Want to get more out of people? Give them more. Give customers more free gifts. Give employees more perks, more compliments, perhaps even more money.  They'll want to return the favor.  Humans are wired that way.

Since our very first business class — and perhaps since our very first lemonade stand — we've been taught the basic principle that people always behave in their own self-interest.  Turns out, that's wrong, or at least it’s incomplete.    

Consider this: When people receive a gift, they feel compelled to give one right back. It's an easily observable sociological trait called the “reciprocity principle,” and it’s much more than a polite social convention.  It’s science. Humans have an innate desire for fairness and justice. One of the first sentences young children learn to say is, "That's not fair!"  Reciprocity is motivated, at least in part, by this desire for equity.

It’s about fairness, not accounting. 

This is a relatively new finding, at least in the world of economics, which generally favored the “selfish actor” worldview for quite a while. That is, until Werner Guth and Hartmut Kliemt created a small experiment that shook this bedrock concept to its core. 

Known now as the "Ultimatum Game," it works something like this: Give one person $10, then tell her or him to make an offer to share some of that $10 with a second person. If the offer is accepted, both keep the money. If it's rejected, neither gets anything.

Here's the rub: If the "proposer" with the money lowballs the "responder" — say, suggests sharing only $1 or $2 — the offer is usually rejected and everyone loses.  Despite losing out on free money, the responder is more interested in fairness than cash. In this case, the "inequity aversion" is worth more than money. 

These surprising Ultimatum Game findings have been replicated in nearly infinite versions and in places around the world.  So it's true: People are motivated by more than money. 

There's quite an opening.

Now, think about the last time you received an unexpected party invitation or gift.  Your first feeling might have been a burden to repay it, to offer a similar party invite, soon, or to imagine what gift you now must buy. Perhaps you eventually talked yourself out of this urge, but there it was — an automatic surge of the reciprocity principle popping uncontrollably into your head. It's been demonstrated in hundreds of ways through myriad experiments. Here's a clever one: BYU Sociologist Phillip Kunz once send out hundreds of Christmas cards to people he didn't know.  What happened? Hundreds replied with their own cards.

Reciprocity seems to be built into the fabric of society, which would collapse if there weren't some kind of natural give and take built into our brains.

Content marketing, in which firms give away their ideas and content for free, is a radical experiment in reciprocity.

Some companies spend billions of dollars trying to make consumers feel something through advertising, let alone take an action, and often ignore the far easier route. Give them something and they’ll feel compelled to give you something back.Plenty of other companies already do leverage this. Free samples have been a staple of supermarkets forever.  Zappos’ "free shipping both ways" model is more than a clever technique to overcome a typical e-commerce barrier: it's a statement that shows how the firm values its customers.  The entire "fremium" model -- get a newsletter for free, then buy a $10 book, then sign up for a $100 seminar, then $1,000 of consulting -- grows from the idea that people will feel some obligation to at least consider buying after getting something for free.  Charities will often send small gifts in the hope of "guilting" recipients into donations. The entire field of content marketing, in which firms give away their ideas and content for free, is a radical experiment in reciprocity.

In some ways, reciprocity is even easier to see in the workplace.  Rewarding a stellar performer with a (surprise!) gift certificate can inspire even more hard work.  Just calling out a worker at a company meeting can serve as a valuable reward, inspiring the employee to not let the manager down going forward.  Of course, a raise or bonus is effective, too. But a well-timed surprise bouquet of flowers or Starbucks card should be an arrow in every manager's quiver to inspire reciprocity.

It’s also good to know that gifts don't have to be expensive. Here's an amazing study in which restaurant waiters who offered mints with the bill, then came back and offered a second round of mints, increased tips 23 percent over their mint-free colleagues.  Another study — it's almost 50 years old, but still rings true — showed that some waitresses who smiled made TRIPLE the tips of over those who kept a blank face.

Gifts, freely given, will often come back to you and your company. 

There are a couple of cautions to consider when thinking about implementing reciprocity. The gift should be a real gift, freely given. Research has shown that if the receiver thinks a gift was somehow forced or insincere, she or he feels less compunction to return the favor — again, it’s about fairness, not accounting.  So, "Here's $20 for coffee, now work all weekend," is a "gift" that can backfire. Why? Because it moves the transaction awkwardly out of the realm of social norms ("Thanks for making dinner! Here's a bottle of wine") and into market norms ("Hey, that's like $1.50 an hour! Screw you.")

More important, reciprocity can work the other way around.  If you treat people badly, they will feel free to treat you badly, too. In the age of social media, Hell hath no fury like an enraged consumer.  Other studies show that layoffs and wage cuts often have disproportionately negative impacts on productivity because workers are "returning the favor" of mistreatment.

 (Editor’s note: Giving things away doesn't always work — advertising and raises doesn't always work, either — which is why is so important, as with any scientific principle, to test and experiment).

So is this kind of gift-giving truly altruistic, or ultimately self-interested behavior with a longer timeline? Experts will probably debate that for hundreds of years -- it can be a mix of all those things. But you don't need to care.  You just need to remember that gifts, freely given, will often come back to you and your company.  Generosity is indeed good for business.

See also:

Know Your Nuggets: The Ikea Effect 


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