> we instituted a ruthlessly enforced $10/minute fine for being late to a meeting with an entrepreneur. So, you are on a really important call and will be 10 minutes late? No problem, just bring $100 to the meeting and pay your fine. When new employees come on, they find this shocking, which gives us a great opportunity to explain in detail why we respect entrepreneurs.
> The economists decided to test their solution by conducting a study of ten day-care centers in Haifa, Israel. The study lasted twenty weeks, but the fine was not introduced immediately. For the first four weeks, the economists simply kept track of the number of parents who came late; there were, on average, eight late pickups per week per day-care center. In the fifth week, the fine was enacted. It was announced that any parent arriving more than ten minutes late would pay $3 per child for each incident. The fee would be added to the parents' monthly bill, which was roughly $380.
> After the fine was enacted, the number of late pickups promptly went ... up. Before long there were twenty late pickups per week, more than double the original average. The incentive had plainly backfired.
$3 for ten minutes is way smaller than $10 for 1 minute.
When you think about how people respond to incentives, first consider the size of the incentive. Otherwise you'd be forced to conclude that, say, a $10,000 fine wouldn't work either, which is plainly absurd.
Exactly, that is comparing apples to oranges. In one of the companies I was in we started charging $5 for being late to a huddle or $20 if you were an exec - people took cabs to get to the huddle on time, because it was the fact that you had to pay, not the amount that motivated you. Cab was more than a fine.
I imagine that the fine at Andreesen Horowitz isn't so much a financial incentive but instead signaling and shock value that respecting entrepreneurs is important, in the same way that book budgets at startups aren't so much a financial incentive but signaling how the company treats engineers.
There's also the matter of who's imposing the fine. For the day care, imposing a fine negated the social incentive not to be late because the parents saw themselves as adhering to the contract the day-care set up. Conversely, the entrepreneur didn't set up such a 'contract' between him or herself and AH, so there's no understanding that it's ok to be late if you pay the fine.
I was late to a VC meeting today. Because I am a dumbass and did not plan my travel well.
Should I, or anyone else, be fined for that?
I apologized when I arrived (and e-mailed as I could beforehand) because it's rude to be late for a meeting with people you are in business with, regardless of whatever monetary incentives someone wants to arbitrarily hang on that.
If you need a fine system to make that work, I'd argue you have deeper problems, problems that money isn't going to do much to solve.
If you had been made aware, in advance, that there was a fine, then sure, you should be fined for being tardy.
Are you pattern-matching on "VC", "lateness", "fine", and your own negative feelings regarding having been late to a VC meeting?
Your reaction to this story (VC firm trying to show that it values potential investment targets' time) is like someone worrying that, since a pizzeria has a policy of not charging customers for a pizza if it's delivered late, you're going to have to provide the delivery person with a free sandwich if you don't get to the door quickly enough after he rings the bell.
I don't think you really understood the research. The research was talking about the difference between social and market norms, not directly about what is the appropriate cost for lateness.
It was social norms that kept the parents picking up the kids on time consistently. Adding a small cost switched the parents from social norms mode to market norms mode. Instead of the parents thinking "oh no, I better hurry now, because it's wrong to be late" as was the case when lateness was free, it became a "is it worth $3 to be 10 minutes late?" calculation.
Replacing social norms with a poorly chosen market rate is dangerous and can potentially backfire. Essentially, there is a discontinuity in people's behavior between a cost of $0, where you benefit from social norms, and a cost of epsilon, where the social norms go out the window. If you actually charge people the cost they are inflicting on you for lateness, then it's again a different story.
Correct, so we would be replacing "let's be on time for meetings with our business partners because we respect them" social norms, with "is it worth $50 to be 5 minutes late for this meeting with a company we invested in?" for ... a venture capitalist. People who have, er, lots of money. That's why they're in the room.
I'm not clear what you thought I misunderstood here.
I don't mean to hold a position that Andreesen Horowitz's fine is effective, so I can't answer that -- I just think that the situation of the daycare and Andreesen Horowitz differs enough that we can't draw conclusions about one by looking at the other.
What do people working at VC firms (as opposed to partners at VC firms) make? I don't think anywhere near enough to make paying a couple of hundred dollars per week just for showing up late negligible.
A fine high enough to hurt financially the person breaking the rules is one option (that's what governments usually do). Other good option is public embarrassment. I used the $1 fine for people late to meetings, but we also counted the number of times each one was fined, so there was an extra incentive to avoid.