Behavioral Economics for Leaders

CHAPTER 35Paying People More Doesn’t Mean They’ll Make Better Decisions

Economic theory generally assumes that higher incentives result in higher commitment and better performance. The assumption is if you pay people enough, they will produce the best results. But if a lot is at stake, it doesn’t necessarily improve performance because the pressure can be counterproductive.

Excitedly waiting for the next penalty taker are an audience of 62,500 in Munich’s Allianz Arena and about 300 million people worldwide in front of their TV sets. Bastian Schweinsteiger walks from the center circle alone to the penalty spot, puts down the ball, and kicks it into the right corner, but Petr Čech, the goalkeeper for Chelsea, deflects the ball with his fingertips to the right post, and it bounces back onto the field. No goal. Bayern München is at risk of losing the final at home in the 2012 Champions League. At the moment, when everything is at stake, when it comes to making an entire stadium and an entire city happy, Germany’s best soccer player loses his cool. And indeed, with the next penalty, Didier Drogba confirms Chelsea’s victory and FC Bayern’s defeat. A year later, FC Bayern München nonetheless wins the Champions League, but the penalty shootout against FC Chelsea left a wound.

Even before these events, my Bonn‐based colleague Thomas Dohmen was able to demonstrate in an empirical study that penalty takers from the home team fail more often than those from the guest team. So Bastian ...