← The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics
The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics
496. The Hidden Costs of Inequity Aversion in Business
00:35:53
In this episode of The Brainy Business podcast, Melina Palmer dives deep into the concept of inequity aversion and its significant implications for businesses. She explores the human tendency to react strongly against perceived unfairness and how this...
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- [00:00]
Melina Palmer
Welcome to episode 496 of the Brainy Business Understanding the Psychology of why People Buy Today's episode is all about inequity aversion. Ready? Let's get started.
- [00:16]
Podcast Announcer
You are listening to the Brainy Business Podcast where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly. Now here's your host, Melina Palmer.
- [00:32]
Melina Palmer
Hello hello, hello everyone. My name is Melina Palmer and I want to welcome you to the Brainy Business Podcast. Fairness is a fascinating topic and one that is really important in business. Companies strive to have fair standards in their business practices, in how they pay their employees, in the offers provided to customers. But should everything always be perfectly fair? Does it have to be fair? And what the heck is fair anyway? Who decides what what is fair and is that fair? Okay, I'll stop saying fair now, though you will hear it a fair bit throughout the episode. We humans are wired to hate inequity. When we sense something isn't fair, it can quickly result in a fiery hot rage and all consuming focus on righting those wrongs, getting back at or proving a point to those who are creating the unfair situation, or doing everything we can to get what we think we deserve. Our often giving up more than would be necessary in the process. In this refreshed episode, which originally aired in September of 2022 in tandem with my book what yout Employees need and Can't Tell youl, I'm talking about this aversion to inequity and how it applies to business. I'll also dig in on the difference between equity, equality, fairness, and more. Before we jump into that, I want to be sure you know that there are links for my top related past episodes and books waiting for you in the show. Notes for episode which are found within the app you're listening to and@the brainybusiness.com 496 all right, let's talk about inequity aversion.
- [02:11]
Podcast Announcer
Inequity aversion is a pretty easy concept on the surface, right? We want things to be equal and equitable. Unless we're the one getting the benefits, then we tend to be a little more lax in our demands for equality and equity, right? And that brings up a big part of the problem that inequality, equality or inequity can be very difficult to see when you aren't the one being directly negatively impacted. And if you have to give something up in order for things to be equal or equitable or fair, it can be really hard to follow through on those good intentions. And that brings us to the problem I pointed out at the top of the show. How do we define inequity and what is fair? So I want to point out that fair and equal are not the same. And furthermore, equality is not the same as equity. Remember, this is inequity aversion, not inequality aversion. So what's the difference? Equality means that everyone is given the same resources and opportunities. Equity recognizes that not everyone has the same circumstances and therefore provides resources in a way that can help receive an equal outcome. There's an image that's shown in common examples of this which has three people trying to look over a fence to see a baseball game. It's presumably a father and his two children. Let's assume one is about 10 and the other is about three. If they are all given equal resources, they might be given a box or milk crate to stand on. The father doesn't really need one, as he could see over the fence. Fine. The older child can now see over the fence with their box and the youngest is boosted a little, but can still only fence if you go from an equitable standpoint. Instead, you would realize that the youngest, or shortest in this case, needs a bigger boost to be able to see over the fence. Giving the smallest child two boxes, one to the other child and none to the adult allows them all to have an equal and unobstructed view of the game. In this example, it's easy to see what is equitable and what would be equal and there is a fair positive outcome for all. But it isn't always, always that simple. What if the man had to stand on his tiptoes a bit to see without the box? What if they weren't his children but instead someone else's kids? The man may say that it isn't his responsibility to give up his right to a box to stand on because he paid for a ticket and that wouldn't be fair. You can see how this gets complicated and complex pretty quickly. For my own work example, I remember a conversation with the HR department at a past job about the salaries of my employees employees and how to look at raises and compensation packages for them come review time. As HR pointed out, at that point it was important to remember that fair pay is not necessarily equal. My team members had different roles which provided different value to the organization. Their tenure wasn't the same, nor the education or experience before working in this role. Someone who had been with the company longer doesn't necessarily guarantee they would be paid more, and having two people in the same role won't absolutely have equal pay or benefits because that might not be fair given their history. So again, we say what is fair and who gets to decide. One of my favorite quotes on this is from Matthew Lieberman, who said fairness seems a bit like air. Its absence is a lot more noticeable than its presence. Isn't that a great comparison? I'm going to say it again here. So fairness is a bit like air. Its absence is a lot more noticeable and than its presence. We don't realize just how important air is to us until we can't breathe. It's easy to take our ability to take these long, leisurely breaths for granted. When the air is plentiful, we completely forget about it and don't even remember it's there or necessary for our survival. But once it's gone, there is nothing else that matters. Everything else that seemed important gets thrown by the wayside and is not even a blip on the radar. We can't do anything else until this problem is solved, and that better happen quickly. It's very similar for fairness and equity in business. Now, as I mentioned, fair, equitable and equal are not the same, but I'm going to group them together for the most part throughout the episode, as they do have a lot of overlap. And for our purposes here, the nuance between them isn't as important as the general conceptual idea. Especially when people think they're being treated unfairly, they may be looking at something not seeming equal and be mixing up terms and not have that same nuance that we do here. So when we think about our aversion to inequity, inequality and fairness, the reaction is essentially the same. And a business can pretty easily group this all into one category of importance, which is why I'm going to use the language pretty interchangeably from this point forward. But again, it is important to remember when you think about your own plans that they're not exactly the same thing, and you do need to think about multiple angles. So much like air. When we feel we're being treated fairly, we don't need to think about this much. It becomes background noise and the business can focus on other things. We can be productive and focus and put in great effort for ourselves and the organization and make really great progress. When we realize we aren't being treated or paid fairly, or even if we just suspect that something isn't fair, everything else can then come to a grinding halt. One way we've seen this recently is with quiet quitting A trend where people are rebelling against their work and only doing the bare minimum of their jobs instead of going above and beyond what their job description says they should do. Now, personally, I think this is a very interesting phenomenon and don't believe it's the right culture for companies to be expecting that everyone will put in far above and beyond their job descriptions on all the time. And then when people say they only want to do what they're paid for, to have them be punished and called quitters, or that they're underperforming, it seems like something is off in that equation, if you ask me. And I would agree that it isn't fair for a company to expect that everyone will go above and beyond all of the time. If exceeding expectations is the expectation, it's a slippery slope of unachievable milestones and markers and a recipe for burnout. I can see how that might feel unfair to workers, especially when they focus on that and everyone else seems to be talking about it. Seeing trends like this on social media leverages availability bias, where we believe things are more prominent than they are because we see them a lot. If you watch a hundred TikTok videos of people talking about quietly quitting, or before that of watching people quitting in a very over the top fashion during the Great Resignation, you may believe that this is much more prominent, that it really is, and make decisions based on that. And you may be judging your own employer looking for negatives based on what you're seeing. But one big potential problem for you that you don't see is that it's possible the only people doing this are those hundred people you saw on TikTok. And they might be making it up to get clicks and followers. And these types of videos come up again and again and again, making it feel really prominent because you like them. Thanks to an algorithm, it's producing images and videos that you're showing it that you want to see, and that may drive you into making a choice or having a feeling about your own work based on a misconception or blowing things out of proportion. In addition to availability bias, this also combines herding, social proof, confirmation bias, and the focusing illusion, to name a few. There's a lot of stuff going on here and you know, come to think of it, optimism bias too, because it helps you believe that things are going to work out better for you in that grass is greener perspective, that you need to take a leap like this one. And while I'm not going to get into this too much today, it's Very interesting to note that research is coming out now about how many people feel great in their decision to leave during the great resignation and how many don't. According to a Bloomberg article and research by job list, of 15,000 workers who quit during this time, 40% said the job market was more difficult than they expected. 20% miss people at their old company, and many of them didn't think that was going to impact them as much as they did. They undervalued that connection with others. 17% said their new job is not what they hoped for, 16% realized their old job was better than they realized, and 9% have found themselves in a company with bad culture and management. And 14% of those surveys who had quit their jobs said they regretted it. So it's actually not that bad. As far as numbers go. It's not like everyone who quit has realized it was a terrible decision, but it is something to keep in mind before you jump for that green looking grass. In any scenario, know that your brain is going to start focusing on positives somewhere else, downplaying those negatives, really honing in on negatives, where you are and why it's not good anymore. And you can just be piling up reasons to leave and be ignoring huge amounts of data when you're kind of ready to go and you're looking at all these negative things. So what this means for employees is similar to what it means for employers. You need to know that when people start to see something that feels inequitable or unfair or unequal, they may really start to snowball in a negative way really, really fast. So it's important to know that this does exist and to make sure that you are doing everything you can to avoid this even becoming a problem. Again, you want it to be something that people don't even have to think about, just like air. And not something that can become a huge, huge problem for you if you don't think about it enough. So the employer needs to think about this a lot and how to present the information to make it so. It's something that employees don't even have to think about. So getting back away from some of these recent trends and regardless of what they are, it's not that the feeling is new. You know, whether you call it quiet quitting or we're looking at the great resignation, it all can be tied back in some way to a feeling of fairness and our aversion to things that aren't fair, equitable or equal. And these existed long before any of these trends were popping up. Here. So one thing that we do know is we pretty universally dislike and reject things that are unfair. The problem is, as you're seeing here, is that what is fair is relative. My circumstances or the context can make it so. What felt fair yesterday isn't fair today, or what I was happy with last week feels terrible now. Seeing others getting treated differently than us is something we really don't like. And this isn't limited to humans. And you know, even with this, you may be getting something that others would say is objectively better, but when it's different from everyone else, it still feels bad. There's a great paper called Monkeys Reject Unequal Pay with an accompanying TED Talk, both of which are linked for you in the show. Notes the video from this research is priceless and so valuable to watch as we think about the way we pay our employees, which doesn't have to be monetary. Paying in praise or availability of projects or access to resources are all considerations here. To keep in mind when we're talking about the way we're giving things to people, that payment, again, doesn't have to be monetary. So the research has two capuchins who are doing a task that they're paid for. The task is simple. Give the researcher a rock and you're rewarded with a treat of some kind. In general, capuchins like cucumbers, and they're willing to get paid with them. They're a reasonable reward for their work, especially with such an easy task like this. In the video of the research, you watch as a monkey named Lance happily does her task and is content with her tasty cucumber reward. She likely would have gone on doing the task and enjoying her cucumber for several more rounds, except after completing her task and being given a cucumber, which she happily ate. She then watched her counterpart Winter do the same task and get a grape. Lance is excited. Now. The promise of a grape is looming and her task is completed with some extra anticipation. When she gets cucumber again, she takes one bite and then throws her reward back at the researcher. Then Winter does her task again and gets another grape. Lance is obviously angry. It takes her longer to complete the task. This time, when handed the cucumber, she doesn't even bother to take a bite. It too becomes a projectile to demonstrate her displeasure with the situation. We may laugh at this. It's a pretty funny video to watch, honestly. But we do this too. We humans will get very angry and, you know, put our foot down. We're not going to deal with this anymore. That's not fair and I'm going to take a stand against it. But this brings up another really interesting facet about inequity aversion. Because we hate the inequitable, unfair and unequal, we'll sometimes put ourselves in harm's way or give ourselves a worse outcome to keep someone else from getting an even better one. In this case, a cucumber is better than no food at all, depending on who you ask, I suppose, as some may argue that cucumbers are a negative calorie food, but let's not go there. Lance Throwing her cucumber back at the researcher didn't prevent Winter from getting grapes, but it sure felt better to visualize and act on her displeasure. I've linked to the episode on game theory in the show notes, which digs in a little deeper on the ultimatum game and some other common ones that are played to see how people act in different scenarios like this. With the Ultimatum game, imagine that I've been given $100. You've been given nothing. My task is to present you with an offer for how much we're each going to get. If you accept my offer, we both get to keep the proposed amounts. If you reject my offer, we both get nothing. My first proposal is that we split it 50. 50. Do you accept? Most people do. Now imagine instead that I propose I'm going to keep 80 and you get 20. Do you accept? What if the offer was that I get 90 and you get 10 or $99 to 1? At some point most people will reject the offer because it feels unfair. You would rather get nothing than reward my selfish behavior. But logically this doesn't make sense. If I offer you anything more than zero, you should accept because you're still going to get more than the nothing you will get if you reject me. But we still do it. Now this happens when there are no long term connections to the other player. It's just a random person and you feel like they were doing something that they shouldn't be rewarded for. You're willing to sacrifice to kind of stick it to the man in this way. Now imagine how this can compound with our long memories. Working on teams, a perceived slight from years back could combine with confirmation bias and the focusing illusion. So one employee is either intentionally or unintentionally sabotaging themselves and your team to keep someone in their department or another from winning anything. It may not be said aloud, but a mentality of they think they're so smart. I'll show them can be running rampant in a business in a way that will keep you from making much progress. And this is why it's really, really important to understand this aversion to things being inequitable and thinking about how you're creating your policies and procedures and the way that you treat employees across varying examples. Now I am going to give you some tips for combating inequity aversion and how to keep this in mind as you're working on those processes and procedures. But before we do that, I do want to give you one other example from our capuchin friends. The same researcher in our TED video discusses how in another experiment, a group of her monkeys got peanuts for a task. One of the monkeys not included in the experiment was watching and became jealous. He wanted a peanut too. Knowing there's no such thing as a free lunch, he started bringing over other things to the researcher to try and trade for peanuts. He started with the least desirable item, monkey chow, and worked up the chain. Eventually, he offered a quarter of an orange. The researcher was surprised because objectively, oranges are higher on the monkey food chain than peanuts. A quarter of an orange is more desirable than a single peanut. So why would he make this offer? It was not about hunger because the orange would have fulfilled that need better than a single peanut. There was something else motivating the decision. Much like our capuchins, whenever there's a question of fairness, motivation will tank. We become distracted and disengaged regardless of whether we're intrinsically or extrinsically motivated. Incentives and motivation are so important when we think about job performance. And I highly recommend Daniel Pink's book Drive, which is linked for you in the Show Notes as he really gets into this. And I do talk about it in my book what your Employees need and Can't Tell youl When you think about inequity, aversion, and fairness, motivation and incentives have to be part of the conversation because they're tied in with the result and efforts a company might make to change the outcome. But you can't throw a bunch of external incentives at an inequity issue or circumstance where people feel they're being treated unfairly and expect them to not look for some serious Cobra effect style loopholes that just make everything worse. And yes, episode 220 on the cobra effect is absolutely linked for you in the Show Notes. It's one of my favorites. When it comes to our aversion to inequity, the best thing to do is to make sure your practices and policies, whether it's pay or anything else are of course fair and equitable to begin with. So if you're doing something or have a practice with lots of secret scales and that rewards some people unfairly and holds others back, first and foremost, take a look at whatever that policy is and see how you can change it. Going back to a statement you might have heard from your parents or other adults growing up. I know I did. When you think about your behavior, whatever it might be, ask yourself if you would want this to be on the COVID of the New York Times. Whatever you might say or gossip about someone, your pay practices, how you reward or hire or fire people. If this was written up and the COVID of the New York Times, or I guess to put it into today's terms, tweeted by a celebrity with a massive following, would you feel good about it or would you have some explaining to do? Are you hoping and crossing your fingers that no one's going to know about this little thing and that you would feel bad if people found out what was really going on? If so, you really want to look at changing that. I don't need to get into the business ethics and good policies and things like that. Hopefully that's just really implied here. But it's really good to take a moment to dig in and see there are likely things that you, you don't even realize are having this inequity or inequality or unfairness to them that you just haven't had to think about before. So it's important to take that time, look through a new lens, and again, I'm going to give you some tips for that here in a minute. Now remember, of course, that something may not be equal and still may be fair and equitable. So it might look a little funky on the surface. Especially if someone feels they're being treated differently and they don't realize the difference between equality and and equity and fairness. The immediate brain reaction is often that's not fair. Which is why this episode and the chapter in my book have that title. Anyone with kids likely hears this phrase often. And as with many of the other concepts discussed on the show, we don't fully grow out of those initial reactions. Our subconscious still feels them often and they drive our actions choices more. So even if someone was to question your practice or policy or be curious as to why you are doing something a certain way doesn't mean it's inequitable or wrong. What you need to be able to do is explain it in a way that makes sense. Having some logic behind the choice is a huge first step and it's amazing how often people forget to think about these things from multiple perspectives before moving forward with a plan, procedure or policy. So I recommend doing this in a couple of steps and you can use your free worksheet to help with this. First, start by asking what you're trying to achieve. Who's this for? What's the point? Who are we not thinking about? Who's impacted by this choice? Consider your demographic groups. Remember the boxes at the baseball game to see over the fence? You have height to consider, as well as the price people pay for tickets and other considerations and angles that matter. Next you want to ask what would be equal? How is equal good? How might someone be left behind or at a disadvantage with an equal approach? Again, this is the Everyone gets a box regardless of how tall they are. Next you want to ask what's equitable or fair? Why is that good? How might someone feel they aren't getting treated fairly if they get less than the other group? In this case, if the fully grown height adult is able to see over the fence but isn't getting a box that someone else gets that he's not related to, maybe feels like it's not fair that he didn't get this box that he might have used for something. It feels silly when we're talking about the boxes, but you know, you never know. Like I said, if there's a little bit of a strain to see versus feeling more relaxed could be something where it feels like it's unfair that they have to have an uncomfortable experience to be able to see. So next, what are your priorities? This might include looking at your values as an organization, either what they have been or what you want to focus on in the future. In the case of our baseball game analogy, you need to ask what you care about the most. You can't be everything to everyone in every example, so you need to pick a lane and set of values that matter and that you can consistently turn to. Stepping back and asking what's most important is a good idea here. Do you care about getting what you pay for? In that case, one ticket gets a free box and if people want or need an extra box, they can pay for it. Or do you care about people being able to see the game they're paying to attend? In that case, having options that are a little different but help get to the same eye level outcome is easily explained and something you can stand behind even if someone disagrees. Lastly, you want to look at what are you missing? What aren't you thinking about? What Would someone from a different background see that you aren't considering? What have others done or where have they gotten burned that you can learn from? Once you've considered the ins outs obvious and less so, you have an opportunity to write out what you're doing and why. And I highly recommend this step instead of just thinking, you'll be able to explain it if you ever need to. It's very much better to do this in a cold state when you're being able to be thoughtful about it, instead of in a hot, reactive state. Thinking through the varying sides can help you also consider who might object and what they might say. Kind of revisiting that last item. If someone pays the same amount for their ticket and they aren't given a box, they might be upset and say it isn't fair. What would you say to them? What would you say to someone else who asks? Understanding the why behind the decision is really important here. As I said, if you can list out that you prioritize everyone being able to see the game they paid for, then not giving everyone a box of the same size makes sense. You have an explanation that you can feel good about and that most people will understand the intention behind. Some people might still feel slighted, but that's okay. You just need to align that with your priorities and the different groups you're working with. Who do you care most about supporting and giving a leg up to? It likely will be someone who doesn't look or sound or act or have the same background as you, or maybe others on that executive level team, depending on where you are in the organization. So this is why it's really important to spend more time, more time thinking about all the angles. Now after going through those steps, you should hopefully be able to explain why you made the decision you did, and it will be in a way that you could be trending on Twitter and feel good about. That being said, you want to always, always, always take a moment to review this with the worst possible intent to overcome fundamental attribution error and see what you might be forgetting. As I said in those steps before, you have to be looking for the worst way this could be interpreted and what you might have missed. Who aren't you thinking about? What aren't you thinking about? Do not skip this step. Most people would agree that they aren't trying to have an unfair work environment or treat others inequitably. That isn't typically the goal that people have. Even if you aren't doing it on purpose, you could still get blasted on Twitter again, knowing that isn't the main place that matters, but it brings brings my old school cover of the New York Times analogy into the present. If you miss something and everyone else can clearly see the glaring hole in your logic, they're not going to be very forgiving. So don't rush something out and expect people will give you the benefit of the doubt. It doesn't often work that way, and it's better to be a little more thoughtful. Wait a little bit longer. Make sure that you're ready to go before you you rush to printing or whatever it is with your policy and moving forward. So once you've gone through and determined that you have a fair and equitable approach, that you understand why you made the choices you did, and could explain in many scenarios why you're giving one person two boxes and another zero, it's time to get transparent When I talk about my it's not about the cookie framework in regards to change within the book and elsewhere. The reciprocity step is looking at transparency and authenticity. Be as open and clear and transparent as you can be with as much as you can. This doesn't mean you need to publicize how much everyone makes down to the penny, but you can explain what the wage bands are for each role and why. If there's an algorithm to determine who gets a bonus, or what their base level salary will be be or where the cap is, make that publicly known. As I've said throughout the episode, it isn't all about pay and other monetary incentives, but this is a common example and so I wanted to address it here. In any scenario, if people don't know what's going on and expect that others are making more than them, or they learn someone else made more than them and they don't know why, or they found out someone else got to work virtually in the end they didn't. Or that someone got a day off when they were denied a request or an extension on a project that they weren't afforded, or a chance for a promotion or mentoring or any other number of things, they will quickly get hung up on whatever their cucumber is and start throwing it around until they get a grape and after the fact. The appeasement grape doesn't undo the initial pain they felt, they will hold onto that and likely build some resentment. That's really hard to overcome. Once you can make it equitable, explainable and transparent, it allows the focus to come off of the external motivations and incentives those grapes and cucumbers and focus instead on the purpose of the work and hopefully doing a job they love. Everything becomes easier when people aren't concerned about fairness, inequality or inequity. Remember, it's the air analogy. When we are able to to not think about error, things are easier. We can focus on doing other big amazing things, but when there isn't any error, when we're worried about that inequity, nothing gets done or matters or can be a priority. So this is a really big thing for every company to look at and address so that inequity aversion isn't stopping all your opportunities before you get a chance to leverage them or do the amazing things that I know that you're coming company can do.
- [32:43]
Melina Palmer
So what got your brain buzzing as you learned about inequity aversion today? For me, I really love the example of fairness being like air and that you don't notice it until it's gone. When it comes to fairness, equity and equality, we can be happy in our own little worlds. We don't necessarily care to learn what isn't fair until it impacts us. But once it's brought to our attention and we know we're not being treated in a way we consider to be fair and equal, it will feel like the most important thing in the world. The difference, of course, is that we can't look the other way when it's air, because whether we're consciously aware of it or not, we won't make it without the air. When it comes to fairness, equality and equity, we can go on happily and working away, sometimes for years, before we realize that something wasn't fair. And then it's all we can focus on. There are a few important things for leaders. One of them to understand the difference between fairness, equity and equality, and also to know what you can do to provide a balance of these things for your teams. This gets hard when those others aren't like you and don't have your same experience. So it's also important to step out of your own space what you've always experienced. Change the wallpaper to use an example from recent guest Nalanjana Desgupta, you might not realize what's fair or equal or equitable when you aren't in that situation. So it's good to ask questions and make time to be thoughtful. My guest on the next episode can help you with this. Her name is Siri Chalazi and she's co author of the new book Make Work Fair. And now you know why I chose to refresh this episode today. Siri is a senior researcher at the Women and Public Policy Program at Harvard Kennedy School, and I'm so honored to have her join me on the show to talk about this important topic. Especially now. If you got value from the insights in today's episode, you're going to love that one. So for anyone who isn't yet subscribed to the Brainy Business podcast, now is a great time to do so to ensure you don't miss that or any other episode. And of course everyone, if you do know someone who you think would benefit from the insights in the episode, please do share it around. There are links in the show notes to make it easy alongs with links to my top related past episodes, books and more are it's all waiting for you in the app you're listening to and@the brainybusiness.com 496 and just like that, episode 496 on inequity aversion is done. Join me Friday for a brand new episode with Siri Chalazi, co author of Make Work Fair. It's going to be a lot of fun. You don't want to miss it. Until then, thanks again for listening and learning with me and and remember to be thoughtful.
- [35:36]
Podcast Announcer
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