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Economist argues irrationality’s benefits

By Chuck Leddy
June 2, 2010

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In his 2008 book, “Predictably Irrational,’’ behavioral economist Dan Ariely entertainingly explored the biases that lead people to make foolish decisions. In this new book, he once again blends psychology and economics to ask basic questions about human behavior, leading to surprising answers. Ariely consistently calls into question the belief that we are “rational beings’’ seeking to maximize benefit by calculating positives and negatives. His experiments show instead “that human beings are irrational’’ — not necessarily a bad thing.

Do big bonuses motivate executives to improve their performance, for example? Ariely, a professor at Duke University, looks at this question by creating an intricate experiment that offered small, medium, and large bonuses to subjects related to their performance on a range of tests. His findings show that small and medium bonuses did indeed lead to enhanced performances, but that larger bonuses actually led to diminished results. “The experience was so stressful to those in the very-large bonus condition,’’ writes Ariely, “that they choked under the pressure’’ and “demonstrated the lowest level of performance’’ among the three bonus levels. When cognitive ability is necessary to get good results, as with corporate executives, large bonuses can actually prove counterproductive, Ariely finds.

Ariely also examines how employees find meaning in their work. With specialization so prevalent in the corporate world, employees can become demoralized by an inability to see their contribution as part of a larger picture. We seek meaning in our work far beyond financial compensation, and Ariely suggests how smart companies can effectively motivate employees by trying “to impart a sense of meaning not just through vision statements but by allowing employees to feel a sense of completion and ensuring that a job well done is acknowledged.’’

On another work-related theme, Ariely shows that people overvalue things they help make themselves. In one experiment, Ariely asks subjects to make an origami animal and then say how much they would pay for it, comparing this price against what nonmakers offered. Makers offered five times the price that nonmakers did. Ariely finds the same “ownership/creator’’ bias in the realm of ideas, concluding that we overvalue our own ideas while focusing on the flaws in ideas generated by others. As Ariely summarizes this “my idea’’ bias: “Any solution [will do], as long as it’s mine.’’

Besides developing and performing social-science experiments, Ariely draws from his life. Discussing human adaptability, for example, he relates his own experiences after a terrible accident nearly killed him. Covered with burns and faced with physical limitations, a teenage Ariely gradually adapted: “I started to enjoy learning and found considerable satisfaction in my ability to prove to myself and others that at least one part of me had not changed: my mind, ideas, and way of thinking.’’ His personal experience supports his research showing that people are stunningly adaptive. Since pleasures don’t keep us high for very long before we adapt to them, Ariely suggests slowing down and even interrupting pleasure to sustain its impact. He also recommends getting through painful experiences in one, uninterrupted time frame.

A few of Ariely’s findings are unsurprising, but still make for fascinating reading. He studies online dating and romantic relationships, concluding that highly attractive people value attractiveness in a mate while “aesthetically challenged’’ people tend to value nonphysical traits like a sense of humor or compatible values. Consequently, he offers criticism of online dating sites as overly quantitative, collecting data on incomes, age, height, etc., while failing to deliver the kind of qualitative experiences that can make “real’’ dating so magical (and painful). “The Upside of Irrationality’’ is an eye-opening, insightful look at human behavior, proving that defying logic is part of what makes us human.

Chuck Leddy can be reached at chuckleddy@comcast.net.

THE UPSIDE OF IRRATIONALITY:

The Unexpected Benefits of Defying Logic at Work and at Home

By Dan Ariely

Harper, 352 pp., $27.99