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The Irrationality of Rational Thinking

Don’t we just love a conundrum? Even though the world of work is a place where rational thinking, solutions and objectivity rules, it is also a place of riddles, paradoxes and immense subjectivity.

Take for example the use of rewards in incentives. We state a preference for cash, yet non-cash delivers greater performance pound-for-pound. With that being the case why does business spend billions more on cash incentives than non-cash?

Business is viewed in a black and white, binary context; something is either right or wrong, up or down, better or worse. But since when was the world that simple? We live and work in chaos, an environment where coincidental and random acts affect everything we do – how often is that rational and well intentioned ‘to-do’ list completed on time, with the right outcome and with no stress?!

I chanced upon a radio programme that, to me, struck at the heart of why we think one thing, believe what we do and behave how we do. It was fascinating and a left-field insight into factors that determine our beliefs and why we might resist the counter-intuitive, despite significant evidence that shows otherwise.

Cash vs Non-Cash – A Conundrum?

In the world of workplace engagement and motivation, this is a very major conundrum. Incentives work. That much is universally accepted, and is a perfectly rational belief. However, it is not often asked ‘how well an incentive works’? The vast majority of performance related rewards used in incentive programmes are cash or cash equivalents. Yet a significant body of evidence shows non-cash reward based incentive programmes outperform cash incentives.

Here’s one example from BI WORLDWIDE’s connection to the world of research. Scott Jeffrey, PhD, undertook a study in the incentive lab:

  • Three groups were subject to an incentive: One with cash rewards on offer; one with a non-cash reward; one simply thanked for being there
  • 85% in each had a chance of earning
  • Of the non-cash group 64% said they would prefer a cash reward, perfectly rational!
  • 68% of those who earned a non-cash reward stated they would not be able to justify spending their own cash, due to its relative luxury
For performance above baseline here’s what happened:
  • Cash motivates, no dispute here. Performance rose 15% above base
  • But non-cash really motivates. Relative performance rose more than twice as much, 39%
  • And this is from a group where 64% said they would prefer cash. Now that is irrational!

The reason for this is well documented and more can be found here, but what interested me was the reason behind cash dominating the incentive scene.

So Why Do Cash Incentives Dominate?

Cue Radio 4's Analysis programme:

“If you think that you are rational and unprejudiced, Michael Blastland hopes you will be open minded enough to listen to the evidence which suggests that you are probably not.”

It covered the area of political belief and why, on the subject of global warming, those on the right of centre tend to be denying sceptics and those left leaning tend to be accepting believers. It hasn’t got a lot to do with evidence. I realise this is scratching the surface of a fascinating topic, but if I have the story right it went something like this:

  • We believe we are rational, pre-judging and open minded, basing decisions and actions on evidence, facts and rational thought
  • However, there is a tussle between evidence and beliefs
  • Opinions, actions and behaviours are not the stuff of rationality. They are more informed by “deeper biological and social currents within”
  • Teams, groups, tribes, call them what you will, share a morality that can “bind and blind”. We sense issues; we rationalise, but can’t solve everything individually, so we seek out answers and experts
  • Hence we have to believe and take others’ word for things
  • Evidence alone is not enough – we act on choices determined by values, the common binds of a team or tribe, our peers
  • We resist evidence that doesn’t tie in with our group values, it’s counter-intuitive to ‘our’ norm, so we deny
  • But, we are seriously affected by how things are said and who says it. 
  • If it’s someone who sets off a “tribal alarm” we react adversely, it offends our values and beliefs, no matter how much evidence to the contrary
  • Hence choices, actions and behaviours are, by definition, irrational

Is this why Al Gore got a beard?

Al Gore with a beardFor business, does this go some way to explain why cash dominates the world of incentive and reward programmes? Western business culture has been pretty monochrome up until the last twenty or so years, the moral binds and filters are pretty consistent, with a uniform cultural cognition – think grey suits, process management, and male dominance etc. The beliefs and values of business are hard wired:

  • Going against the flow and changing is dangerous! 
  • Use cash to reward – we all believe it works, it’s easy and expedient to use, and above all else...
  • ...It’s what business values and measures.

However, this is a more enlightened, global and diverse business age, and one where performance increases and productivity gains are expected to be greater and more frequent.

And the point of all this?

If you want to consistently raise the performance of your business, whether sales, customer service or operational efficiency, then:

  • Embrace the counter-intuitive
  • Step outside the ‘tribe’
  • Stand apart
  • and don’t accept the performance gains which cash incentives produce. 

Instead, go for the real stellar, sustainable, improvement that only non-cash rewards and incentives can deliver.

If you’re interested on how this thought process came about, and what informed it, then check out:

BBC Radio 4, Analysis – Political Prejudice and programme contributors
The thoughts of Roger Scruton
Jonathan Haidt – Professor of Psychology and author of the Righteous Mind and the Happiness Hypothesis
Dan Kahan, Professor of Law and Professor of Psychology at Yale Law School and the Cultural Cognition Project

And don’t forget BI WORLDWIDE’s white papers and articles, featuring the research and conclusions of leading academics and researchers such as Dr Ran Kivetz PhD and Scott Jeffrey among others. Maybe follow our own Tim Houlihan and Andy Cakebread, both of whom have a particular interest in this area.

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