When a nudge backfires: Using observation with social and economic incentives to promote pro-social behavior

Both theory and recent empirical evidence on nudging suggest that observability of behavior acts as an instrument for promoting (discouraging) pro-social (anti-social) behavior. Our study questions the universality of these claims. We employ a novel four-party setup to disentangle the roles that the relevant observational mechanisms play in affecting pro-/antisocial behavior. We systematically vary the observability of one's actions by others as well as the (non-)monetary relationship between observer and observee. Observability involving economic incentives crowds-out anti-social behavior in favor of more pro-social behavior. Surprisingly, observation without economic consequences fails to achieve any aggregate pro-social effect, and if anything it backfires. In additional experiments we confirm that this backfiring effect is driven by inequity concerns. We propose and successfully test a solution: increasing the focus on the underlying social norms.