Imagine you are a college student who has agreed to participate in a psychology experiment. When you come to the lab you are asked to perform the most boring task you have ever tried, you are extremely bored but you still complete the experiment so that you do not have to come back another time to do another experiment.
After you are done the experimenter tells you that there is another participant waiting outside and that it would be terrific if you could try to convince him or her that the task is fun and interesting and thereby increase motivation a little bit. Since you are a nice person and don't want to block psychological research you agree to this.
Alternatively, after the experiment you are asked whether you would like to convince the next participant that the experiment is fun and interesting and (crucially), you are offered 20 dollars for agreeing to this...
Now how do you think the average person would think and act in the two situations described above? Would you put in more effort if you were paid than if you were not paid? Interestingly, most participants put in a lot more effort in convincing the next participant that the experiment was fun and interesting if they had been given no money! Why? The reason is "cognitive dissonance" (a term first coined be Leon Festinger forces the participants to actually believe that the experiment was fun and interesting. After all, why would I stand here and convince a stranger that an extremely boring task is actually fun and interesting...? Do I get paid...? No! Well, I guess it is because I did in fact enjoy the tasks a little bit... hmmm... yeah, it was indeed great fun... and very interesting as well... that must be it.
Cognitive dissonance refers to the unpleasant state in which your behavior is in dissonance (does not agree) with your beliefs or thoughts. "This experiment was extremely boring (belief)" and "convincing someone that it is fun and interesting (behavior)" does not go well together. Either you have to change your behavior (which is sometimes impossible if you have already done it), or you change your beliefs (which is what most people does). The third alternative is to live knowing that you acted in a way that contradicted your beliefs - hypocrisy.
Indeed when participants were later asked whether they enjoyed the experiment or not, the ones who did not get paid claimed that it was much more fun that the participants who received payment. After all, the paid participants only tried to convince the next participant because they were paid - no dissonance there...
What does this have to do with loyalty? Here is a lesson. If you are going to start an organization or a political party or whatever, and if you need some people who are loyal and energetic about the business, do not pay them... If you pay them, then in their head they can say to themselves that I am doing it because of the money. If they do not get any money, they can only say to themselves that I am doing this because I like it - and that is the best type of employee or member.
Another example: Say that you are a therapist or some sort of advisor. If you want people to value your service, take high fees! If you do this your patient or client will think to themselves "why am I paying so much money for this", well I guess that it is because it is so damn good, after all, who pays a lot of money for therapy that isn't really working or an advisor who does not give good advice? Some people do of course, but it will be very difficult to admit that to yourself, it is easier to think that the service you got was worth the money, that way you avoid cognitive dissonance.
Leon Festinger, the inventor of the term "cognitive dissonance" in his book "When prophecy fails" used the example of a doomsday cult who was expecting the end of the world. Festinger infiltrated this group lead by Mrs.Keech. The group believed that the earth would end in a great flood before 21st of December, 1954. Everyone on earth was going to die except this little cult of true believer who was going to be picked up by a flying saucer on the 20th of December 1954. Before midnight the group gathered outside, waiting for the flying saucer. When the clock turned 12AM, nothing happened... but wait, there was another clock which was only 11.55. So they wait another 5min, but still nothing happened... Mrs.Keech cries... The groups’ waits outside until 4AM when suddenly Keech receives a message saying that this little group of true believers managed to change God's mind - and that therefore he (or she) would not flood the earth after all... A nice solution to the dissonance that would otherwise make them feel very very stupid. Rather than admitting that they were simply wrong, the group decided to believe in an ad hoc story that would make sense of things
One last example (apparently this is true only for trained wine tasters and not for lay persons):Experiments show that expensive wines taste better than cheap wines, even if the different bottle contains exactly the same wine... Why? Because no one wants to be the person that goes out and buys an expensive bottle of wine that is no better than a cheap bottle, that would be stupid and no one wants to be stupid...