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Is THIS why bankers caused the crash?
Started:May 11th, 2012 (07:46 PM) by kbit Views / Replies:189 / 0
Last Reply:May 11th, 2012 (07:46 PM) Attachments:0

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Is THIS why bankers caused the crash?

Old May 11th, 2012, 07:46 PM   #1 (permalink)
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Is THIS why bankers caused the crash?

The more money people are offered as a 'reward', the more likely they are to 'freeze up' and fail at crucial moments.

In a trial where volunteers had to perform a physical dexterity test, their performance actually DROPPED as they were offered more money for success.

The research throws into question jobs, such as investment banking, built around a 'bonus culture' which is often performance-related.

If a financial 'carrot' is dangled, people's performance actually drops - instead of becoming more focused on the task, they focus on their fear of losing the reward.

Bonuses and other incentives could actually SAP people's performance.

A new study by researchers at the California Institute of Technology suggests that when there are high financial incentives to succeed, people can become so afraid of losing their potentially lucrative reward that their performance suffers.

You would think that the more people are paid, the harder they will work, and the better they will do their jobs-until they reach the limits of their skills.

That notion tends to hold true when the stakes are low, says Vikram Chib, a postdoctoral scholar at Caltech and lead author on a paper published in the May 10 issue of the journal Neuron.

Previous research, however, has shown that if you pay people too much, their performance actually declines.

Some experts have attributed this decline to too much motivation: they think that, faced with the prospect of earning an extra chunk of cash, you might get so excited that you will fail to do the task properly.

But now, after looking at brain-scan data of volunteers performing a specific motor task, the Caltech team says that what actually happens is that you become worried about losing your potential prize.

The researchers also found that the more someone is afraid of loss, the worse they perform.

In the study, each participant was asked to control this virtual object on a screen.

The virtual object consisted of two weighted balls connected by a spring. The task was to place the object, which stretched and contracted as a weighted spring would in real life, into a square target within two seconds.

In the study, each participant was asked to control a virtual object on a screen by moving an index finger that had a tracking device attached to it.

The virtual object consisted of two weighted balls connected by a spring. The task was to place the object, which stretched and contracted as a weighted spring would in real life, into a square target within two seconds.

The researchers controlled for individual skill levels by customizing the size of the target so that everyone would have the same success rate. That way, people who happened to be really good or bad at this task would not skew the data.

After a training period, the subjects were asked to perform the task while inside an fMRI machine, which measures blood flow in the brain-a proxy for brain activity, since wherever a brain is active, it needs extra oxygen, and thus a larger volume of blood.

By monitoring blood flow, the researchers can pinpoint areas of the brain that turn on when a particular task is performed.
The task began with the researchers offering the participants a randomized range of rewards-from $0 to $100-if they could successfully place the object into the square within the time limit.

At the end of hundreds of trials-each with varying reward amounts-the participant was given their reward, based on the result of just one of the trials, picked at random.

As expected, the team found that performance improved as the incentives increased-but only when the cash reward amounts were at the low end of the spectrum.

Once the rewards passed a certain threshold, which depended on the individual, performance began to fall off.

Incentives are known to activate a part of your brain called the ventral striatum, Chib says; the researchers thus expected to see the ventral striatum become increasingly active as they bumped up the prizes.

And if the conventional thought were correct-that the reason for the observed performance decline was over-motivation-they would expect the striatum to continue showing a lot of activation when the incentives became high enough for performance to suffer.

What they found, instead, was that when the participants were shown their potential rewards, activity in the striatum did indeed increase with rising incentives.

But once the volunteers started doing the task, striatal activity decreased with rising incentives.

They also noticed that the less activity they saw in a participant's striatum, the worse that person performed on the task.

Other studies have shown that decreasing striatal activity is related to fear or aversion to loss, Chib says. ‘When people see the incentive that they're being offered, they initially encode it as a gain,’ he explains. ‘But when they're actually doing the task, the thing that causes them to perform poorly is that they worry about losing a potential incentive they haven't even received yet.’ He adds, ‘We're showing loss aversion even though there are no explicit losses anywhere in the task-that's very strange and something you really wouldn't expect.’

Is THIS why bankers caused the crash? People 'freeze up' and fail if they're offered big financial rewards for success | Mail Online

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