Exploring The 'Upside Of Irrationality'

MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

Dan Ariely parses the irrationality of human decision-making. He is a behavioral economist. In his latest book, he sums up his view of humankind this way: Far from being the Mr. Spock-like, rational creatures of classical economics, we have a lot more in common with another TV icon, Homer Simpson.

But while in the past, Professor Ariely has shown how our irrationality makes us such likely suckers, this time, in his book "The Upside of Irrationality," he seems to be warming to us human nut jobs. And he joins us now from New York. Welcome to the program once again.

Professor DAN ARIELY (Behavioral Economist, Duke University; Author, "The Upside of Irrationality"): Nice to be here again.

SIEGEL: And I'd like you to focus, in this conversation, on what we work for and how, through the lens of behavioral economics and psychology, you see compensation as something more complicated than it might appear to an academic economist.

Prof. ARIELY: Yeah, so it's kind of interesting that when you ask people what is the relationship between the size of bonus that we give somebody and their motivation to work and their performance, people think that both of these relationships are positive. You give people higher bonuses, you promise them higher bonuses, they will try harder and then, they'll actually become more successful; they'll produce further.

And of course, the recent financial recession should get us to pause a little bit and think, is this really the case? Now, it's actually very hard to test. So we tried to create an experiment because in real life, you can't examine this to the same degree.

SIEGEL: You mean, actually seeing whether bonuses make people work better or not?

Prof. ARIELY: That's right. So imagine the following experiment with three conditions. Condition one, we give you six tasks. Each of them lasts a few minutes, in total they last about an hour. And I say, Robert, if you do very well on all of these six tasks, I'll give you one day of compensation, whatever you make in a regular day. If you do half of them well, I'll give you half a day compensation; a third, a third; and so on.

In another condition, I say, if you do those well, I'll give you two weeks of compensation. And in the third condition I say, if you do those six things well, I'll give you five months of compensation. Now we're talking real money.

(Soundbite of laughter)

SIEGEL: Right.

Prof. ARIELY: And the question is, what would happen to your desire to succeed, and what will happen to your actual ability to succeed? And it's not a big secret to think that the more money I promise you, the more you will try. But the question is, will you succeed?

SIEGEL: Now, we have to say here that to actually conduct this experiment, to say - to come even to NPR, needless to say not to Wall Street, you could run into some money offering people, you know, several months' compensation.

Prof. ARIELY: That's right. NPR is easier than Wall Street, but we actually created the experiment in India. And what happened is that despite the fact that people want to succeed more when they get the five months' salary, they actually succeeded to a much lower degree.

In fact, there was one task in which about 43 percent of the people got it right when we got them the low level of bonus, but at the high level of bonus, only 4 percent got it right.

SIEGEL: And the tasks were no more difficult at the higher level of bonus?

Prof. ARIELY: No, no, they were exactly the same. They were exactly the same tasks. So everybody the same task. And a way to think about it is, imagine I told you that if you will be really funny in the next 10 minutes, I'll give you $100,000.

(Soundbite of laughter)

SIEGEL: I'm prepared to choke right now at that offer.

Prof. ARIELY: That's exactly what happened. So it turns out that money is kind of a two-edged sword. It's a motivator when we get more money, we want to do better. But it's also a stressor in the sense that the more money creates more stress.

Now, in simple task, if I told you, I'll pay you to jump, and I gave you either a dollar per jump or a thousand dollars per jump, you will jump more because you have good control over your muscles, and you can just will yourself into higher effort.

But when it comes to creativity and problem-solving and thinking and memory and concentration, it turns out you can't will yourself to higher level of performance. And instead, the high bonus actually got people to be very stressed.

SIEGEL: But if I were a Wall Street banker - at least, I can imagine a Wall Street banker saying, you don't understand; we have a different relationship to stress. We thrive off of people who thrive on stress, are totally stressful. We don't care when they have cardiac arrest, but they make a ton for us while they're working.

Prof. ARIELY: Yes. You know, I went to give a talk to some bankers, and they said exactly that, right? They said, oh, no, no, you do experiments on regular little people, and we are super-special people. We thrive on stress to such a degree that there's not enough money in the world that would get us to stress. We would never get to that level.

And I'm an experimentalist, right, and I proposed to them that they'll give us enough research budget and come to the lab, and we can test them out. But they were not that interested.

(Soundbite of laughter)

SIEGEL: Okay. Now, I want you to tell us about another experiment that you did, that you write about in "The Upside of Irrationality," which also gets to the nature of work. This was inspired by friends of yours who had the experience of either preparing a very big PowerPoint presentation or editing a book - some project that is then canceled. You do the work, you get paid for it, perhaps quite well, but nobody actually sees the thing that you've done.

Prof. ARIELY: That's right. So the question is: Why do we work? And of course, it's much more complex than this one, simple answer. But one, trivial answer that people often give is, we work for money. And it turns out, that basically works for rats under some conditions, but people work for many more motives - including meaning, a sense of completion and so on. But in our reasoning about why people work, we often don't include that part.

And because of that, we created an experiment. We basically created two simple conditions. In the first condition, people came and we said, we are going to give you Lego robots, and you're going to build them, and we'll pay you in a diminishing scale: $3 for the first, 2.70 for the next, and so on. And every time you finish one, we'll ask you, do you want to build another one? And they will say yes or no, and we'll see when you stop.

SIEGEL: With Legos, this is?

Prof. ARIELY: With Legos, yeah. And the question is, when is the benefit of building a Lego not sufficient, and you decide to stop?

And after people finished each piece, we put it under the table and we said, do you want another one? This was the first condition, which we called the meaningful condition.

In the second condition, which we called the significant condition, we gave them a Lego robot and if they said they want to build another one, we gave them a new one. But we took the first one they just built, and unassembled it in front of their eyes. And if they said they wanted to build another one, we gave them the first one they built and we took apart - to build again.

(Soundbite of laughter)

Prof. ARIELY: And we basically, the merry-go-round of these two robots back and forth, back and forth until they decided they didn't want to do it. And there were basically two results. In the condition when we took it to pieces in front of their eyes, people stopped much faster. They basically did not enjoy the task as much.

The second thing we did, we asked people how much you enjoy Legos in general. And what we found was in the meaningful condition, when we didn't dissemble it in front of their eyes, the more they liked Legos, the more they persisted in the task. But in the second condition, it was basically no correlation.

And I think it's basically because of the simple fact that by destroying people's labor in front of their eyes, we kind of erased every possible meaning out of it. We kind of choked the joy out of this task and therefore, they just gave up much faster and they were just not interested in this.

And sadly, I think this is a good analogy for lots of stuff that we do in the workplace - when we take things that could've been enjoyable and by doing little things to people's ability to infer meaning on their job, we just kind of eliminate motivation and joy.

SIEGEL: Dan Ariely, thank you very much for talking with us.

Prof. ARIELY: My pleasure, as always.

SIEGEL: Dan Ariely, who is the James B. Duke professor of psychology and behavioral economics at Duke University, is the author of "The Upside of Irrationality."

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