When hybrid cars first became mass produced over a decade ago, Honda and Toyota had two different strategies.

Honda chose to produce a hybrid version of its wildly popular “Civic,” believing brand familiarity would help customers feel more comfortable with its brand-new technology.

Toyota not only decided to produce an entirely new model car, they intentionally designed it so it would stand out.

Which of the two models do you think ended up outselling the other one on a grand scale?

According to Uri Gneezy, behavioral economics professor at the Rady School of Management at the University of California, San Diego, Toyota’s “Prius” continues to dominate hybrid car sales today – specifically because Toyota’s senior management understood how incentives work.

One might think that acquiring one of the first energy-saving hybrid cars would have been motivation alone for people already inclined to do their part to help the planet. But Toyota knew it wasn’t. They understood that people buying the first hybrid cars would also want to “signal” to other people that they were the kind of eco-conscious person who’d be willing to sacrifice personal luxury & horse power in order to help the environment. So, Toyota intentionally built an edgier (literally) car to ensure other people “noticed” it.

This is just one of the myriad examples Gneezy cites in his new bestseller, “Mixed Signals: How Incentives Really Work,” to show that incentives send powerful signals that aim to influence behavior. But often – especially when it comes to workplace incentives – there’s a conflict between what a company intends with their incentives & the behavior they actually motivate.

Consider the leader who urges teamwork, but unintentionally designs incentives for individual success. Or the one who invites innovation but punishes failure. It might sound funny, but organizations have been known to tell workers that “quality is job one,” while launching incentives that pay for quantity.

To help workplace leaders especially, Gneezy highlights how the right combination of economic & psychological incentives can encourage people to drive more fuel-efficient cars, be more innovative at work, & even get to the gym. “Incentives send a signal, & your objective is to make sure this signal is aligned with your goals.”

This is a fascinating discussion that will not only teach you how to more effectively create incentives for your employees and even children – it also explains how incentives are used to motivate our behavior (and not always favorably) by people we all interact with every day (think doctors, plumbers, sales people et al).

Wharton’s Adam Grant named “Mixed Signals one of his highly recommended books of 2023.

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