THE UPSIDE OF IRRATIONALITY
The Unexpected Benefits of Defying Logic at Work and at Home
by Dan Ariely
Harper Collins, 334pp.
Reviewed: 16 October, 2010
Life experience continues to undermine confidence in one’s own rationality and to confirm doubts on the rationality of others. So this book was opened with hopeful curiosity about the “upside” of our common human trait of irrational behaviour. It turns out that the “upside” consists mainly of the way our emotions provoke certain decisions that an economist, or game-theorist, might consider “irrational”.
The “upside” is when such “irrational” decisions allow us, as individuals and as members of communities, to make the most of choices that may be limited by our circumstances.
Dan Ariely announces himself as a “behavioural economist”, but his training and method is experimental psychology, specializing in the study of decision-making. The “upside” tag in this title may attract the “how to get rich” readers, but they will quickly find that Ariely is more lamb than shark. Rather than finding general magic in the defiance of logic (as the subtitle may suggest), most of this book exposes flaws in the spurious “rationalism” espoused by naïve economists and managerialists.
Some of his findings on performance management, from real-world observation and from controlled experiments, will ring bells with any veteran of Canberra’s public or corporate sectors. Bonus and incentive payment systems may be effective in motivating workers who produce output in quantifiable units (eg widgets made or bricks laid), but are shown to have been counter-productive in most situations where the individual’s output will be strategic, long-term or with benefits dispersed across a wide range of indirect stakeholders.
The reason is simple. An executive with too much immediate personal stake in short-term performance indicators (such as share price) will tend to be either too risk-averse (if the shareholders are lucky) or to exploit his status and inside knowledge to temporarily inflate the indicators beneficial to his bonus or stock options (viz. Wall Street). Who could now believe that today’s share price is a reliable indicator of a corporation’s long-term value?
The Canberra equivalent sees bonus-minded or short-contracted senior public servants self-censoring their advice, to avoid annoying somebody in the Minister’s office who has pet plans or prejudices of their own and will resent contrary advice.
Ariely’s research shows clearly that work motivation is much more likely to be affected by the individual’s sense of ownership of the product, and recognition of contribution, than by quantitative output bonuses. We value more, to an “irrational” extent, something to which we have contributed.
In what Ariely calls the IKEA effect, manufacturers have found that products requiring some creative input from the purchaser are more marketable than the equivalent completed product. A manufacturer of cake mixes sold far more after taking the powdered egg out of the mix and instructing the buyers to add their own eggs. People take pride in their wonky self-assembled furniture.
Irrational? Not if the real product is buyer satisfaction.
The downside of this is an equally irrational tendency to reject the ideas of others. Thomas Edison, supposedly the model pragmatic experimenter, wasted millions of dollars opposing the introduction of alternating current electricity supply because he had personally promoted the (less efficient) direct current method. Such downside examples of irrationality are plentiful.
Other common irrational hazards are the desire for revenge, and the law of Hedonic Adaptation, which means the longer we enjoy something, the less we enjoy it. Ariely cites interesting experiments showing people enjoy things more when they have them occasionally rather than continually.
The Hedonic Adaptation rule also applies to remuneration. Workers respond more positively to regular small pay rises over a period than to a single larger pay rise at the beginning of the same period. Not rational, but real.
Several chapters dive right out of rationality and into love. Ariely suffered severe disfiguring burns as a teenager, and this gave him a career interest in how people of all kinds find a partner in a competitive “market”.
DIY matchmaking seems to meet many of the economists’ criteria for market failure. Ariely explores the limits to rationality in on-line dating. One rational client systematically sorted and culled 10,000 potential mates through a process lasting many months, and came up with a perfect match. Then she rejected him.
In love, and more broadly in social empathy, rationality seems to take a back seat. We are easily manipulated to feel empathy for a doe-eyed single child in distress, but cheerfully ignore millions of foreigners facing death, or the disadvantaged at our own doorstep. But perhaps limits to empathy are necessary to make life bearable, for most of us. Perhaps this is, after all, rational.
This book canvasses a range of interesting questions about how we make decisions. It is pitched for the saleable “self-help” genre but, though chatty and personal in style, it has the integrity not to offer glib solutions.
The rational/irrational dichotomy provides a rickety framework but, in the end, seems a bit bogus. What emerges from the experiences and experiments analysed in this book is the need for balance and improved self-knowledge.
I think this used to be called by a name not found in this book – wisdom.
Richard Thwaites has been trying for some decades, irrationally, to be perfectly rational.