Money changes what we think is fair, Rotman research finds

December 09, 2009

Toronto - Thinking of rewarding your sales department for a job well done? You might not want to make cash part of the pay-off.

A study to be published in an upcoming issue of Psychological Science, a journal of the Association for Psychological Science, shows that when it comes to distributing resources, people's ideas about what's fair change depending on what's being handed out. If it's something that has its own intrinsic value - in-kind goods such as food or vacation days - people are more likely to see equal distribution of such items as fair.

But if it's something that is only valuable when it's exchanged - such as money or even credit card reward points - ideas of fairness shift to a more market-based attitude. In that case, the thinking is that people should receive according to what they've contributed.

"What exactly is it about money that causes people to treat it so differently than other resources?" asks Sanford DeVoe, an assistant professor of organizational behaviour, at the University of Toronto's Rotman School of Management who co-wrote the paper with Columbia University's Sheena Iyengar.

"The paper shows that it is the property of money being a medium of exchange," Prof. De Voe says. "When you allocate something that only has its value in what it can be exchanged for, that is what activates a market mindset and really invokes these strong norms about input and effort leading to reward."

The findings have applications for how companies cope with negative situations too. A firm that wants to cut costs might consider giving employees all the same time off rather than making equal pay cuts across the board that could potentially lead to disgruntlements from a sense of unfairness.
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Psychological Science is ranked among the top 10 general psychology journals for impact by the Institute for Scientific Information.

For the latest thinking on business, management and economics from the Rotman School of Management, visit www.rotman.utoronto.ca/NewThinking.

The Rotman School of Management at the University of Toronto is redesigning business education for the 21st century with a curriculum based on Integrative Thinking. Located in the world's most diverse city, the Rotman School fosters a new way to think that enables the design of creative business solutions. The School is currently raising $200 million to ensure Canada has the world-class business school it deserves. For more information, visit www.rotman.utoronto.ca.

For more information:

Ken McGuffin
Manager, Media Relations
Rotman School of Management
University of Toronto
Voice 416.946.3818
E-mail mcguffin@rotman.utoronto.ca
Follow Rotman on Twitter www.twitter.com/rotmanschool

University of Toronto, Rotman School of Management

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