Pseudo-Endowment and Loss Avoidance

This post (free registration required) is a great reminder on the importance of communicating your incentive activity.  The more you communicate the better.  One of the ideas - creating an award calculator - allows participants to begin visualizing their earnings.  This made me think of a couple of psychological theories that can substantially increase program effectiveness.

The first is something called a "pseudo-endowment effect"  (one of the key drivers of why people continue to bid up in auctions) whereby once the participant can see the award and the path to get to the award the participant begins to psychologically "own" the award.  Once they see themselves owning the award not hitting their goals would be akin to someone taking the award away.  This in turn creates a feeling of loss that kicks in another principle - most people are more motivated by the potential lose of something than the potential gain of something of equal value.

So you get a double whammy - once they see the award clearly they begin to think they've already earned it - and because they don't want to lose the award they work harder to ensure they hit their goals.  Very powerful stuff.