Social Norms vs. Market Norms

I recently finished reading a book called Predictably Irrational by Dan Ariely. This book discusses why we as humans do not make smart, rational decisions, but rather predictable and irrational decisions. One topic in this book I found interesting was the idea of social norms and market norms, and what behaviors trigger which norm. Dan Ariely used a great example of big family dinners. The cook would see it as rude if one of the family members pulled out their wallet and asked how much dinner was worth. So how is this different from going out with a colleague and pulling out your wallet to pay for your portion of the dinner? According to Dan Ariely, "we live simultaneously in two different worlds - one where social norms prevail, and the other where market norms make the rules".

What are social norms?

Social norms are the norms we follow for the warm and fuzzy feelings from feeling needed and appreciated. According to Dan Ariely, "Social norms are wrapped up in our social nature and our need for community". These relationships are personal and more emotional than market relationships. These norms are effective when with family, friends, or when you're volunteering. In these type of situations, you're not expected to pay people for services, and are not expecting any payments for the tasks you perform. This could include making a big family dinner, helping a neighbor move a couch, or any friendly requests that people make of one another.

What are market norms?

Market norms are the opposite of social norms. According to Dan Ariely,"when you are in the domain of market norms, you get what you pay for". These sharp-edged exchanges include wages, prices, rents, interest, and cost-and-benefits. These norms are seen most in the business world, such as business deals and salaries. When you're at the grocery store, the cashier isn't just going to let you go through checkout and give you free bananas! You have to pay for the bananas that you're buying. In exchange for money, you are able to eat.



What happens when these norms overlap?
Where is the line drawn between these two types of norms? Sometimes, it's very obvious, and other times it is not. For example, how long can you have your neighbors watch your dogs or kids before you owe them something? One hour? One day? One week? Usually, this decision is based on the relationship and your own personal opinion.

Companies sometime struggle with the market norms versus the social norms. Companies such as State Farm and Home Depot try to establish a social relationship with their customers. State Farm for example uses the slogan "like a good neighbor, State Farm is there", trying to convince their customers that they are empathic and understanding.This can sometimes cause issues concerning the customer's relationship with the company. When there is a strip market relationship, customers understand that they must pay on time, or they'll be a late fee. However, when you add a "neighbor" aspect to the picture, customers don't understand why the neighbor aspect doesn't apply to all parts of the business model.

I have a similar relationship with my management company here in Bozeman, Montana. They are extremely friendly and reach out to make sure that things are going okay at our house. They do not always respond in the timeliest of manners, but they expect you to understand. However, when something does not go their way, or we have a problem that they are responsible for, they flip the switch and try to abide by market norms. As a customer, it is very frustrating to believe that you have a certain type of relationship with them, but they constantly flip-flop between the two.

There will never be a defined line that separates social norms and market norms. It will differ with every relationship. There are also relationships where both social and market norms are used depending on the situation. The key is to make sure both parties are on the same page about which norms are in effect in which situations.