The Idea
Picking a sure small reward versus a risky big one depends on the effort it requires and how much you enjoy it.
The Research
Ran Kivetz ran a series of six studies to assess how having to make an effort affects how consumers choose among different kinds of rewards. The studies involved more than 1,700 train travelers and students. The reward programs in the studies included free hotel nights for car rental, frequent-flyer miles for buying cereal, cash for trying out a math or poetry curriculum, movie or vacation tickets for feedback on a magazine and CDs or a CD player for rating songs over the Internet.
The results of the research showed that having to do something for a reward makes you pick a sure small reward over a riskier big one, but only up to a point: when the effort seems greater than the sure small reward is worth, you switch and start preferring the riskier big reward whose payoff would make the effort worth it. When you actually enjoy the task, you’re willing to put in more effort before shifting away from the sure small reward in favor of the riskier big one.
Practical Applications
Designers of reward programs
Frequent-buyer programs have spread from hotels and airlines to a vast array of sectors. This research method can help all of them to determine the best mix of sure versus risky rewards and to understand how enjoyment of the effort that earns the reward can shift the balance between the two. Targeting your programs to consumers who enjoy the effort can reduce the total payout.
Consumer research and rating professionals
The Internet has spawned a whole industry of online consumer research and rating that asks consumers to answer questions and compensates them with rewards. As with frequent-buyer programs, this research method can help you determine the mix of sure versus risky rewards and how to target consumers who enjoy the task you ask them to do.
READ THE RESEARCH
Ran Kivetz. "The Effects of Effort and Intrinsic Motivation on Risky Choice."
ABOUT THE RESEARCHER
Ran Kivetz
Professor Ran Kivetz is a tenured professor at Columbia University Business School, where he holds the Philip H. Geier endowed chair. Professor Kivetz...