Those of you that have been receiving our newsletter for a while will know that we are big fans of Dan Ariely. You can see our review of his previous book Predictably Irrational on our website click here. One of the most important ways to improve how we think about the future and how we act in the light of that thinking is to understand better how our biases and thinking processes work and skew our thoughts about what might happen. In this book Dan Ariely gives some great examples of these processes. It is important to note (and Dan states this) that the experiments he and his fellow psychologists and behavioural economists run are just that – experiments. They should be treated with a level of scepticism because they are just experiments but at the same time they should lead to further investigations and thinking because of the insights they provide, not be dismissed out of hand because they do not gel with our standard way of thinking.
Some examples are:
Chapter 1 – Paying for Less
In this chapter Dan describes a series of experiments that demonstrate that when we look at bonuses for performance on tasks that are more than just simple mechanical tasks performance improves with a certain level of bonus but then falls away once the bonuses becomes larger. When he presented those results to a group of merchant bankers by was met with absolute scepticism. In response Dan quotes Upton Sinclair who said “ it is difficult to get a man to understand something when his salary depends on him not understanding it”.
Chapter 2 – the Meaning of Labor
In this chapter Dan describes several ingenious experiments show that even in simple tasks performed for an experiment, if people feel that their work is not being acknowledged, or is being ignored then their performance falls away alarmingly. The experiments also show that the level of acknowledgement required is only minimal. This had me thinking how about how I should deal with my partners, clients and employees.
Chapter 3 – The Ikea Effect
In this chapter Dan demonstrates that what we make ourselves and have invested time in we value way more than we should. This is part of the basis of the manner in which people hang on to ideas or strategies that outsiders assess as not worth pursuing or maintaining.
Chapter 5 – The Case for Revenge
In this chapter Dan describes a version of the trust game where you are paired with someone you do not know and will never meet and go through a process where you share money but you have to trust each other to do well. In this version you also get the ability to punish the other person if they have not been fair, but it costs you some of your own money. A surprising number of people were willing to punish the unfair person even though they themselves lost economically from it. People’s brain activity was measured during the process and during the revenge part their brain’s pleasure centre lit up. In another experiment a large percentage of people who thought a researcher had been rude to them kept extra money they had “accidentally” been paid but when that researcher apologised in the experiment before the payment the percentage dropped enormously. Generally humans seem hard wired to be honest in their dealings with people and to trust others to do the same but when that trust is breached they can be quite savage.
Chapter 6 – On Adaptation
In this chapter Dan describes how we adapt to our circumstances. For example people who have suffered reasonably severe pain in their past are more pain tolerant than the average later in life, and people who are exposed to an annoying noise for longer describe the last five seconds as less annoying than those just exposed for five seconds. From this and other experiments Dan suggests that taking breaks from unwanted or annoying tasks makes them even harder because long periods of adaption make us more tolerant whereas breaks in the experience cause us to adapt less. He suggests the opposite approach to enjoyable things – stating we will enjoy them more if we take breaks and return to them.
Chapter 9 – On Empathy and Emotion
In this chapter Dan describes the reasons why we react more to help people who are close to us (both in proximity and relationships), where the experience of what they are going through is more vivid; and what he calls the drop in the bucket effect. This is where you feel empathy for a problem or people but because the problem is so large you feel you cannot make any meaningful impact. I read this chapter while the Chilean miners were being rescued and could not help reflect that if someone had donated the amount of money it had cost to rescue the miners to malaria prevention or clean water in the developing world it would have saved countless more lives but the emotional impact of the story tugged on everybody’s heart around the world.
Chapter 10 – the Long Term Effect of Short Term Emotions
In this chapter Dan describes the effect that short term emotions have on our decision making. We would all understand that if we make decisions when very angry or very happy those decisions are affected by those emotions. However what Dan shows is that those emotionally driven decisions result in long term effects on our decision making in similar situations, which many of us would reject as being the case. In one case they play a game called the ultimatum game where one player gets given $20 and has to make an offer to split the money with another person. If the other person rejects the offer they both get nothing. A rational economic approach would say that the person receiving the offer should accept any offer because they make themselves worse off by rejecting the offer no matter how unfair it is. In reality people make offers that are closer to 50:50 and strongly unfair offers are generally rejected. In a side note Dan states that if you play the game with economists both as proposers and deciders they are far more likely to make and accept unfair offers because they see it as being rational to do so. However if you pair economists with non – economists the economists are deeply disappointed when their unfair offers are rejected and cannot understand why. In a variation of the game the experimenters made the participants experience anger at unfair treatment and recall an experience where they were angry at such an event, or experience something funny and recall a similar experience in their lives. This was done before they played the game. When the game was played with this as a primer the number of people who rejected unfair offers was higher in the group that had felt the negative emotion before the game was played. They then did the game again later in the day when the emotions had subsided and got the same results –i.e. the decision making bias was maintained. They then reversed the game and made the same people make the offers instead of react to the offers. In this case the people who had previously experienced a negative emotional primer made far less unfair offers than the others. It seems that our decisions are far more affected by old emotional experiences than we might give credit for.
Dan finishes the book by saying “I also fervently hope that you will doubt your own intuition and will run your own experiments in an effort to make better decisions. Ask Questions. Explore. Turn Over Rocks. Question your behaviour, that of your employees, and other businesses, and that of agencies, politicians, and governments”
I believe that this is fundamental to the process of thinking about the future. Questioning our own assumptions and biases, and those of our organisation is critical to thinking better about the future and creating better strategy. It can be difficult, wearing and confrontational but in a world that is changing more and more rapidly more of our old assumptions are going to have to be re-examined.
Overall I really enjoyed the book, Dan writes in a simple and compelling way that allows the reader to understand quite complex subjects. I felt that his chapter on romance and dating was a bit self-indulgent and made some assumptions of its own but that was a small blemish in what is otherwise an excellent book. I would recommend anyone who is interested in understanding how our brains work and how we make decisions to read it.