Lecture 6 Intro to Motivation and Hierarchical Needs

  • What is motivation?
    • Internal processes that indicate, direct, and sustain goal-directed behavior.
    • What drives individuals to achieve their goal
      • Intrinsic: personal satisfaction (internal rewards and enthusiasm)
        • Passion
        • Interest
        • Curiosity
        • Enjoyment
        • Purpose
        • Fun
      • Extrinsic: external rewards like money / recognition
        • Money
        • Praise
        • Awards
        • Punishments
        • Grades
        • Rewards
      • Both
        • Academic Success
        • Relationships
        • Career Success
  • Importance of Motivation in Economic Behavior
    • Motivation drives decisions like
      • spending: motivated consumers respond strongly to marketing strategies
      • saving
      • career choices & productivity at work: motivated employees are more productive
    • Biases distort motivation, suboptimal choices
  • Historical Perspective on Motivation
    • Adam Smith (Moral Sentiments): Sympathy and virtue are drivers of human behavior
    • Sigmund Freud (Psychoanalysis): unconscious motives behind actions
    • Abraham Maslow (1943): Proposed the Hierarchy of Needs theory
  • Key Theories in motivation
    • Maslow's Hierarchy (1943): Human motivation through 5 levels of needs (Physiological to self-actualization)
    • McClelland's Need Theory (1961): Achievement, power and affiliation as motivators
    • Self-deterministic Theory (SDT) (Deci & Ryan, 1985): Distinguishes between intrinsic and extrinsic motivation
    • Herzberg's Two-Factor Theory (1959): Differentiates motivators (e.g. achievement) from hygiene factors (e.g. salary)
  • Motivation Applications in BE
    • In BE, understanding motivation can help use design better policies (e.g. nudges)
    • e.g.
      • Consumer Behavior: Why buy luxury goods or save for retirement?
      • Workplace Productivity: Intrinsic vs. extrinsic rewards.
      • Public Policy: Nudges motivate sustainable behaviors.
  • Hierarchical Ordered Needs in BE
    • Maslow, American psychologist. Five tier model (most basic to most complex)
    • Pyramid
Level Meaning Definition
Self-Actualization When our core needs are met. Become the most complete and authentic version of ourselves. We can act as we choose that aligns with our value system. The desire to achieve one's full potential Creativity, problem solving, accepting of facts
Self esteem Status and self-esteem. Admired and respected individual of the group. Respect, self-esteem, status, recognition Prestige, feeling of accomplishment
Love & Belonging Social needs. We feel secure when we are part of the tribe. No fear of alienation. Social needs, relationships, sense of connection Friendships, intimate relationships, family
Safety We need to feel safe, confident and avoid pain. Internal factors like pain hunger etc too. Security, stability, freedom from fear Personal security, financial security, and well-being
Physiological Don't want to be hungry, thirsty, cold etc. Basic Biological requirements Air, food, water, shelter, sleep, clothing

  • Economic behavior/implications:

    1. Physiological needs: consumers spend on necessities
    2. Safety Needs:
      • Demand for insurance, savings products, healthcare
      • Risk aversion in financial decisions, job security
      • Market for safety products and services
    3. Love and Belonging needs:
      • Social goods, communication services, social media
      • Gift giving
    4. Esteem needs
      • Luxury goods, status symbols (e.g. expensive cars, jewellery)
      • Conspicuous consumption
    5. Till now were what we can call deficiency needs...
    6. Self-Actualization needs
      • Personal growth industry, experimental purchases
      • Experience economy: we pay for the experience (not easily available, creates memories)

  • The Expanded Hierarchy of needs

    • Cognitive needs: knowledge and understanding, exploration, need for meaning and predictability
      • Drive our knowledge for pursuit
      • Student's desire to understand complex mathematical theories
      • Traveler's curiosity about diverse culture
      • Atmic knowledge
    • Aesthetic needs: appreciation and search for beauty, balance, form etc.
      • Individuals seek environments and experiences that resonate with their sense of beauty
      • Appreciation and pursuit of art, music, nature and other forms of aesthetic expression
      • Utility is derived by experiencing order and elegance
    • Transcendence needs: Motivated by values beyond personal self. Higher reality/purpose/universe
      • Altruism, spiritual connection and help others achieve their potential
      • Experiences: nature, aesthetic, sexual, service to others, pursuit of science, religious faith
  • Criticisms of Maslow's theory
    • Lack of empirical evidence
    • Cultural bias towards western values
    • Assumption of a rigid hierarchy
    • Oversimplification of complex human needs
    • Modern interpretations: Progression is not linear. Needs can be progressed simultaneously and prioritize them differently
  • Alderfer's ERG Theory
    • Existence: Physical & Physiological needs
    • Relatedness: Social & External Needs
    • Growth: Internal esteem and self-actualizations
  • ERG Theory vs Maslow's Hierarchy
    • No strict hierarchy.
    • Allows for simultaneous activation of needs
    • More flexible across cultures
    • Introduces the frustration-regression principle
      • Unmet higher needs can increase the desire for lower needs
  • Motivation & Decision-Making in BE
    • Needs \(\to\) choices
    • needs influence economic choices
  • Examples of Need-Driven Economic Decisions
    • Basic Needs: Discount grocery shopping during inflation
    • Social Needs: spending on weddings/events
    • Esteem needs: purchase luxury cars
  • Case Study - Luxury Goods Market
    • Veblen Goods (Rolex, Hermes) defy the law of demand
    • Behavioral Insights: Scarcity + Exclusivity = Perceived Value
    • Irrational demand: 73% of buyers prioritize status over utility, defying traditional price-demand laws.
  • Case Study - Coca-Cola's "Share a Coke" Campaign
    • Strategy: Personalization (names on bottle) \(\to\) emotional connectino
    • Behavioral insight: Social belonging + self-esteem = viral success
    • "Share a coke memory maker" (exploiting social needs)