Predictably Irrational with Dan Ariely

Dan Ariely: if we divide the world into intrinsic motivation and extrinsic, extrinsic is salary, bonuses, health benefits, retirement benefits, titles, things like that, we find very little benefit. We find that you add more to those things, you don't see stock market improvement. On the other hand, if you improve what's called intrinsic motivation, you get a dramatic, dramatic shift. when you look at how proud people are about the place that they're working at, when they have connection with the direct manager, when they feel appreciated, when they feel psychological safety, it's all of those soft things that end up actually predicting alpha,
James: Hello and welcome to another episode of the Disengaged Podcast. My guest today has spent more than two decades investigating why people make the decisions they do. Dan Ariely is the James B. Duke Professor of Psychology and Behavioural Economics at Duke University. And a founding member of the Center of Advanced Hindsight. He holds doctorates in cognitive psychology and business administration. He's written nine books, including predictably irrational. Which introduced behavioral economics to a general audience in two thousand and eight. And misbelief, which he published in twenty twenty three, after finding himself at the center of a conspiracy theory. I discovered him some years ago when I was researching into the relationship between incentives and performance and came across his research paper, Large Stakes and Big Mistakes. It found that paying people a great deal of money to perform better actually made them perform worse. and I've wanted to speak directly with Dan and talk to him about that research for a while now. So without further ado, I give you Dan Ariely Dan Ariely welcome to Disengaged.
Dan Ariely: Lovely to be here. Really wonderful to talk to you. I got some of your questions and they were great. Not too narrow, not too broad. A question I haven't encountered before, so I'm looking forward to this.
James: All right. Well, let's go through them. so so first of all, it's a pleasure to speak to you because I have known your name for many more years than you've known mine. So I've read your research, and more recently I've read some of your books as well. So we'll talk about a few of those books. But first of all, because I I was actually listening to the audiobook, because I have to I still haven't received my physical copy of Misbelief. So I was listening to the audiobook of Misbelief, and as I was listening to it, I was thinking. This really reminds me of the Hitchhiker's Guide to the Galaxy. I really feel like I need to go back and listen to the radio show and I thought, wow, this guy just sounds so much like Arthur Dent, like Simon Jones. And I get to the end of the book,
Dan Ariely: Yeah.
James: because I just I couldn't accept that I'm listening to an audiobook narrated by Arthur Dent. And I get to the end of the book and it's narrated by no less than Simon Jones himself. And the best part is he even refers to a piece in the Hitchhiker's Guide of the Rain God. was it McKenna? I can't remember his first name.
Dan Ariely: Yeah, yeah, yeah.
James: So how did he get Simon Jones to record your audiobooks?
Dan Ariely: So much like you, I'm a big fan of the Hitchhiker's Guide to the Galaxy. And I loved Simon Jones' voice
James: Mm.
Dan Ariely: in that. And then I had a really lucky opportunity to meet some of the people from Monty Python.
James: Pretty.
Dan Ariely: Yeah. And anyway, we had really a Wonderful, wonderful meetings. It was wonderful. You know, comedians are really, I don't want say comedians are social scientists because they're not scientists, but they are social observers and
James: Mm mm.
Dan Ariely: it's wonderful. Anyway, guess who was their agent? It was Simon Jones' So anyway, we got all to be a big family, and I learned about them. I learned about her. I got to meet him. And I actually asked him to read every one of my books.
James: Nine.
Dan Ariely: And he did. So it's been a real pleasure. And he's a wonderful, wonderful guy with a wonderful voice.
James: Yeah.
Dan Ariely: And some people ask me, why don't I read my own books? I think everything has expertise. He's an expert in that and I'm not.
James: he does a great job. Like he do and just because I do record my own books because I can't afford Simon Jones, but you know, I I find it difficult to stay clear and crisp and articulate. He his technical ability for narration is great, but also the way he uses his voice to as a as an emotive source of energy I think is wonderful. So if anyone's listening and wants to get into your books, I would highly recommend the audiobook versions because they are really, really engaging to listen to. And he did at least two, right? So he did He did all eight of them. Okay, so I've only listened to two, so I I couldn't verify that.
Dan Ariely: Yeah. No, he did eight. Yeah. Yeah, yeah, yeah, yeah, yeah, yeah, we go back. Everyone
James: Right.
Dan Ariely: since the first one, and it's been a real pleasure.
James: Yeah. That's really cool. That's really cool. It makes it mu it makes it really, really enjoyable to listen to as well. and I'm glad to hear you're a fan of the hitchhikers. I was gonna ask if you're a fan of the hitchhikers guide as and you click it, yeah.
Dan Ariely: Yeah, but by the way, me, for me, those things also make a difference. I wanted to know the person who reads my book in person. I wanted to know their spouse. mean, you know, it's not, for me, these are not transactions. They are, it's part of the family.
James: Yeah, absolutely. so let's talk about behavioural economics then, because first of all, for anyone that's not tribut define this in some of your books as well. So for anyone that hasn't encountered the term behavioral e economics before, how do you define it and how do you think about it? And what is it about it that fascinates you?
Dan Ariely: Yeah, so the term is real strange if you haven't been indoctrinated to it. Because in some sense, most science is saying, this science is doing something that is unexpected. And in many ways, behavioral economics is doing what is expected. But the way to understand behavioral economics is to understand maybe rational economics first. And to say that rational economics believes that people are fully capable and fully able to make the best decisions for themselves every time, all the time, no problem.
James: And this, by the way, was what I was taught when I was learning economics. Do you assume that
Dan Ariely: That's right.
James: everyone has access to all the information, makes rational decisions, and acts in their own financial self interest.
Dan Ariely: That's right. And in standard economics, people feel and believe that people are perfectly rational. What does it mean? It means that we can always, always, always make the right decisions for ourselves. That's the standard. You see people eat a lot. You don't ask, they making a mistake? You're saying, They're making the right decision for themselves. Let's understand why. You see people don't save for retirement. You say they must make the right decision for themselves. Let's understand why. the economic framework is very much people are already very rational. Let's understand why it's rational, but let's not question their rationality. And behavioral economics, It's a little bit like going back to your grandmother and say your grandmother says, know, wait, wait, wait, I've met people before. They don't seem to me to be that rational. People make all kinds of mistakes. Let's now understand their mistakes. So in the scientific world, behavioral economics is just saying. Hold on, before making those assumptions, let's test them. Let's put people in different situations and see how they behave. And lo and behold, you put people in different situations, you see lots of irrationalities that you can observe. Now, why does it matter? It's not because you want to say to economists that they're wrong. It's because we are building the world with some very important assumptions. How do we pay people? How do we tax people? How do we punish people? Think about something like punishment. If you believe in rational theory, you would say, people are texting and driving, let's put the fine. And if people had a fine, they'd say, you I wanted to text and drive, but the fine is too high, let me not text and drive. It turns out that if you look, for example, at states in the US that introduced fines for texting and driving, you see more accidents rather than less accidents. Why? Because people don't stop texting and driving, they just start texting and driving below the wheel. If before they texted driving like this, now they do it like this, they are more likely to get into accidents. So...
James: Since it So we've made it even more dangerous inadvertently.
Dan Ariely: even more dangerous. So behavior economics is really about let's not make assumptions, let's put people in situations and let's see how they behave. And one very important thing about this thing is that the world keeps on changing. You know, the world with driverless cars is different. The world with Facebook is different. The world with AI is different. So unlike physics, we get a new environment all the time. And we have to figure out what is the right thing to do in a different way, continuously. It's not like, say, let me figure it out and I finish the job. No, no, it's going to keep on changing. And we have to keep on changing what we. what we do is a consequence of that. So that, I think, is the essence. Now, if I may, my view of human decision making is to view it as a vintage Swiss army knife. What do I mean by that? Swiss army and vintage. The Swiss Army Knife part is the idea that the brain is not particularly good at any task. Think about the Swiss Army Knife. There's not a single task that you say, need to solve X. I wish I had a Swiss Army Knife. No, you always wish for a better tool. You compromise for a Swiss Army Knife. It's never your first choice. But the greatness of the Swiss Army Knife is that it does lots of things in a compact envelope. And our brain is a little bit like that. Not excellent in anything, quite good at lots of things, and we can carry it with us as we make decisions. But they also have the vintage part in the metaphor. And the idea of the vintage part is that our tools for decision making have evolved in a very different period. We lived in small communities, we were hunter-gatherers, the risk we had to fear of being eaten or injured. We didn't have compound interest. We didn't have years after retirement. So for example, we can catch a ball, which is kind of an amazing computation to make.
James: Mm-hmm.
Dan Ariely: But we can't compute compound interest. Right? How much is 3.7 % for seven years? You we don't have a good grasp. Like with the ball, say, it will arrive here. And you compute the whole trajectory. With interest
James: Right.
Dan Ariely: rate, you can say, it's like, but you don't get the same sense of it. So we are this vintage Swiss army knife. We have these set of tools that were designed for very different tasks. And now, We co-opt these tools in a very different way, but often in a way that just doesn't get us to have good decisions.
James: And is it fair to say that maybe some of those tools have been, I don't know if this is a fair word, but kind of hijacked by social forces as well? You talk a bit about social media towards the end of with misbelief, yeah. Yeah, yeah. And you talk about the fact
Dan Ariely: sure i thought that about
James: that we're not evolved to be in those environments, right?
Dan Ariely: That's right, deal with that. So definitely co-opting by many. So the simplest version is to think about the cookie. The cookie is a food that was engineered with the right combination of sugar, fat, and salt to get us to want one and then another one and then another one and another one. was somebody is designing that. But you're absolutely right about social media. And I like the contrast between cars and social media. So let's think about cars for a second. Cars get better every year. Every year, the engineers make lots of changes to make the cars better. And what kind of changes do they mostly make? A little bit of energy efficiency, a little bit material. Mostly they're making it harder for us to kill ourselves than other people. They're adding things to the car that would make us kill ourselves at the lower frequency. Let's put the mirror here and the seatbelt here and the mirror here and the little light here and let's not get these people to be able to turn the wheel without any restriction and let's help them break. Think about this, right? The people who are designing cars, they don't say, let's send these people to remedial. driving every month. They don't say, let's send them pamphlets about how to drive. They say, no, no, no. Let's realize that whoever decided to put these people behind the wheel made a huge mistake. But here we are. And let's make cars less dangerous. Now think about social media. Social media also gets better every year. How does social media get better? It gets better, but the engineers of social media also understand human fallacy, failures in a better way, but they use it to take advantage of us. They say, these people seem to like gossip. Let's give them more of that. Well, these people don't seem to read much. Let's give them pictures. They like authority. They like this. Let's give them more of that. They like. They like think that other people, so it's kind of like the cookie version. And think about the scale between social media and cars. We are who we are. We are vintage Swiss army knife. You can't help it. That's it. Like, you know, can send us to courses for all kinds of self-improvements. Maybe we'll improve a little bit here, a little bit there. In general, we are who we are with our out-of-date tools for limited decisions. And now I think the question is, what is the world going to look like? Is it going to look more like cars or more like social media? What are we going to create? Imagine you and I were going to develop a new payment method, a new credit card. We could decide to make it more like cars, design it to help people make better decisions. think about money, think about fighting less about money, all kinds of things like that. Or we could do it to get people to spend as much money very quickly and don't think about this and be very bad for them in the long term. So that, think, is the question. And that, by the way, is also a big difference between behavioral economics and standard economics. Because if you believe in standard economics, the world is just perfect. We don't have to do anything.
James: Mm.
Dan Ariely: If you believe in behavioral economics, you say, no, the world is far from perfect. There's lots to do.
James: Hm. Yeah, and and you mentioned finances, and that reminds me of an anecdote you told about advising a credit card company of how to socially engineer spending in such a way that would improve people's spending habits and ultimately their economic efficiency, which didn't
Dan Ariely: Yeah. Yeah.
James: go anywhere, I seem in the end. Yeah.
Dan Ariely: No, we've done all kinds of things on the spending side. I'll tell you about one that is not in the book, which is interesting. So we looked at the differences between credit cards and prepaid debit.
James: Mm.
Dan Ariely: So you get credit card, the balance goes up. You get prepaid debit, you load it,
James: Right.
Dan Ariely: the balance go down. One of them goes away from zero. One of them gets towards zero. And it turns out you ask people how much do you want to spend this month? Let's say they say $2,000. And then they end up spending more. But it's worse with a credit card than with a debit card.
James: Mm.
Dan Ariely: With a debit card, it's a bit closer to what they planned. So credit card, people dramatically overspend. Prepaid debit, they also overspend. And then we said, what if we loaded it weekly, not monthly? You you load a card with $2,000 for discretionary spending beginning of the month, you feel wealthy, maybe you spend too much. Maybe a week is better. We found yes, week is better. You load the card for a month, you feel very rich in the beginning and you run out.
James: Okay.
Dan Ariely: A week is more compatible with our ability to make decisions. But then we did one other interesting study, for me the most interesting. We compared what happened when we pre-load the money on Monday versus Friday. And which one do you think is better?
James: So pre weekend or postweekend basically. Yeah.
Dan Ariely: That's right, that's right. And the answer is that if you load the money on Friday, the weekends happen and people waste too much and they run
James: Right.
Dan Ariely: out. If you load it on Monday, people savor for the weekend. And
James: Mm.
Dan Ariely: then in the weekend, it's much easier to play up and down. During the week, you say, I have to get lunch, I have to do this. The weekend, you have much more flexibility.
James: Mm.
Dan Ariely: It's small things like that, prepaid versus credit, monthly versus weekly, Monday versus Friday, but if you get those details right, you can get people
James: Mm-hmm.
Dan Ariely: to make better decisions.
James: Yeah. And that's the key difference, isn't it? The classical economics. You don't take into account any of that. You assume that people are sensible, smart, decision making creatures, that they all act in their best interests, purely and rationally. And it just isn't true, which is like a key theme of a lot of your writing. Which brings me
Dan Ariely: That's right.
James: to the study that I really wanted to speak to you about. And I've really wanted to speak to you about this for many years, because it's the study where it first came across your name. Large Stakes and Big Mistakes is the name of the study. I'll put a little Screenshot it up here as well. Now I came about this because I started off reading about Sam Glucksberg, the Canadian psychologist, and his candle experiment. He used Duncker's Candle to test what happens when you incentivize people to solve an abstract problem of some kind. And a few years ago, just a little bit of context. So I've worked in compensation for much of my career, and for a long time I was selling incentive plan design and you know the old adage to a hammer, everything's a nail. You start thinking that, okay, we can incentivize everything. If we get the incentives right, then we can just make people perfect and align to our mission and solve problems. And I got to a point where I was kind of thinking, I'm not sure that's true anymore. but I'd love to look into the research. So I went down this rabbit hole of research and I followed Sam Glucksberg's experiments and many other experiments in the 70s, all the way through to your more recent piece of research, large stakes and big mistakes. And the reason it interested me is because you did it in India in order that your Research funding could go further and you can actually offer people meaningful amounts of money, not just five
Dan Ariely: Yeah.
James: dollars here, ten dollars there. So that's how I came across it. But I'm gonna stop there and ask you to tell me more about it. I'd love to hear a bit about the origin of that study, a bit about how you designed the tasks, and maybe some examples of those kinds of abstract problems that you had people solve, and ultimately what you felt was your, you know, your conclusions from that.
Dan Ariely: So first of all, I think we're in the same boat in terms of this idea of incentives and saying the workforce is incredibly important. People spend a lot of time there. And the question is, are we getting the most out of it? And the way I think about it is that motivation is a place where you have free Energy and you just need to harvest it. You know the perpetual motion machine Imagine two factories one people come to happy and They work hard and they stay longer and management is happy and shareholders are happy and people are productive The other one people hate going to So the show up late they go early. They are much more in vacation. They don't work much They don't solve problems. Management is miserable. Productivity is low. Shareholders are unhappy. I think if you think about the place where we have free energy, it's human ingenuity. I think people want... be motivated, people want to be driven, people want to find the purpose. And the workplace needs to let them do it as a first step. Then we can improve it. to start with, we need to allow it to happen and not to undermine it. think most workplaces now actively destroy motivation.
James: Yeah.
Dan Ariely: So I thought that when people are positively motivated, everybody wins. And when we depress people, everybody loses. And my concern was with all of these people that view people very mechanistically.
James: Mm, mm.
Dan Ariely: say, people are like rats on the maze. Let's put a bit more money here, a bit less money there.
James: Mm-hmm.
Dan Ariely: And it didn't feel like a good description of humanity.
James: Kind of BF skinner model, right? With just yeah, rats and pigeons and skinner boxes.
Dan Ariely: Yeah, yeah, yeah. And I had kind of a couple of experiences. One is I looked at people who were doing extraordinary things, running a marathon, climbing a mountain, doing startups. And those people did not describe what they were doing as happy. but they described it as incredibly fulfilling. Imagine I asked you to give me the three things in your life that you find most meaningful, you're most proud of. My guess is that none of those will be... hours of laughter or sitting on the beach drinking beer. think one of those would be things that are complex and difficult and challenging that you have to overcome much more than laugh. So it struck me that we have this very overly simplistic model of motivation and the world of motivation is very different. Now... That study was a study that you said exactly right. We wanted to get tasks. We wanted to look at payment. And we decided to go to India where we could pay people, you know, months of salary and we could afford it. And what we basically showed there was that people choked under pressure.
James: Mm.
Dan Ariely: You could say, the more money is on the table, the more I want to succeed. That's true. But the question is can we succeed more when there's a lot of money on the table? Right? If I say James, if you'll tell me a really funny joke in the next five minutes, I'll give you $10,000. Now, you really want to, but your mind is going to be busy with $10,000. Are you going to be able?
James: Yeah. Also I tell terrible jokes as well, so no amount of money's gonna help there.
Dan Ariely: I will tell you that in the last eight years I've had much more research on this question of compensation. And one of the things I started doing was I started looking at satisfaction surveys. Lots of companies do these satisfaction surveys and how do you like the coffee, you're a direct manager, all kinds of things. And I got those satisfaction surveys going back many years and for almost all Fortune 500 companies. So really big data set. And I started looking at to what extent did the answers to these questions predict stock market return? And which questions predict positive stock market return and which ones predict nothing or negative? And in general, if we divide the world into intrinsic motivation and extrinsic, extrinsic is salary, bonuses, health benefits, retirement benefits, titles, things like that, we find very little benefit. We find that you add more to those things, you don't see alpha stock market improvement. On the other hand, if you improve what's called intrinsic motivation, you get a dramatic, dramatic shift. when you look at how proud people are about the place that they're working at, when they have connection with the direct manager, when they feel appreciated, when they feel psychological safety, it's all of those soft things that end up actually predicting alpha, actually predict stock market.
James: Mm. And th and this was one of your studies, was it, the you know you went back and collected this data?
Dan Ariely: We collected data for this for years
James: Mm.
Dan Ariely: and renders. Eventually, we created the company. I stepped out of the company since. And the company has an index. an ETF that invests in companies that are treating their employees better.
James: really? Okay. Mm.
Dan Ariely: And you can look at the ETF and you can look at the performance. And I thought this would be a better view than to write an academic paper. I
James: Right.
Dan Ariely: had a lot of interesting things. That's probably the same experience you had. I would go to lots of people and I would say, hey. Why don't you start taking notice of the human capital in your organization? Or I would say to investors, why don't you invest in companies that the human capital is high? And people would say, we're fundamental investors. So what's more fundamental than human motivation?
James: Well that's you know, that this is what I come back to again and again. Like companies exist as groups of people in service of other people. Like if we're doing it at the expense of that joy or intrinsic motivation or something worthwhile, then what's the point? Like it's you know, this a this escape to go back to rational economic theory and say, Well, this shouldn't apply more people feel about
Dan Ariely: That's That's right.
James: it, it's a scapegoat to
Dan Ariely: Yeah, you know, I had many talks with Wall Street executives who would say things like, I don't like this one to seven scales. I want to see hard evidence. And what I would tell them often is I say, you're wrong. I said, imagine I asked you, how much do you love your significant other on a seven point scale? That number. would tell me more about how much you love them than looking at how many emojis, love emojis you sent. And similarly with pain. If I asked you how much pain are you right now, that would give you much more information, and even if I could measure your neural activity. Because eventually, a lot of the experience we really care about are very internal. For example, in the data, we find that salary companies that pay better don't get higher stock market returns, higher alpha. But companies where the payment is perceived to be unfair do worse. So it's not about the objectivity of the amount, it's about the subjectivity of is this fair? The same thing, the way,
James: And that and that's what
Dan Ariely: is true for promotions and other things. Fairness is very, very important.
James: And it's a very relative concept as well, isn't it? It's relative to your social
Dan Ariely: very relative confidence.
James: group, which is your peers in the company. And it doesn't matter how much
Dan Ariely: That's right.
James: you explain your multivariate regression and how you determine the differences between your pay and your colleagues'
Dan Ariely: That's right.
James: pay and how you went through a performance review cycle and calibration. If people don't perceive it as fair, then that
Dan Ariely: Yep.
James: they it would then it isn't fair because fairness is a subjective concept. yeah, it's it's a really interesting problem.
Dan Ariely: That's right. that was such a big part to try and explain. I don't think I did a good job to Wall Street. Like you would say, look, let's admit that in the US, women are systematically underpaid. They get less money than men for doing the same jobs. There's just no way you can go to a woman. that sit next to somebody else in the cubicle and he gets paid differently because of his chromosomes and that you can show her all kinds of equations to convince her that it's actually okay. You know, it's just not going to happen. There's going to be this dramatic feeling of unfairness and you have to fix
James: Yeah.
Dan Ariely: it.
James: so to go back to I want to come back to this topic of of changing minds, like like to your point on the Wall Street executives, how do you convince them that something so common is potentially so damaging? But I want to go back to large stakes and big mistakes just for a brief moment because if anyone's not familiar with that, the the real aha for me was that you can't really pay people to be better at solving problems. And I wanted to check is that a valid interpretation of your of your findings?
Dan Ariely: I would say the following. I think that there are very few things that we can volitionally improve on. And I think we need to, rather than think about things in a very superficial way, we need to get into the details. So imagine you paid me more to design an interesting experiment. What are the things that are under my control? I could sleep less. I could drink more coffee. I could maybe take Adderall or something. But could I say, I could turn off Twitter or whatever, right? I could do those things. But in terms of my sheer ability, It is unclear whether I could sit here and be more productive. You know, if you paid me to run faster, I think I could run faster. I could squeeze more energy. But if you say, Dan, please sit here and I'm paying you a lot, please be extra creative. I don't even know what I would do. More
James: Mm, mm.
Dan Ariely: coffee, yes. Less sleep, yes. Maybe less distractions, maybe. But can we will ourselves to be more creative? I think the answer is basically no. And then you say, okay, so if I give you now a big incentive and you're not getting to be more creative, what is the big incentive doing? And the answer
James: Mm.
Dan Ariely: is creating stress. So. And in the book I kind of write this example. say, imagine you go into brain surgery, very delicate, very delicate brain surgery. And you meet the surgeon just before you go under. And you can say, hey doctor, just so you know, if you'll succeed, I've given instruction to wire $100,000 to your account. And if you don't do well, just so you know, I hired a hitman that is waiting for you just by your car. Spot 33. Now, do we really think that that surgeon will do better? And the answer is that nobody thinks they'll do better. Everybody realized that they'll take their brain capacity and rather than focusing all of it on the task, Some of it will be hoping for the $100,000. Some of it will be afraid of the hitmen.
James: Mm-hmm.
Dan Ariely: And a lot of the time, that's what we do with large compensations.
James: Mm-hmm.
Dan Ariely: It's not like running, so we don't get the extra benefit of getting people to be more productive. But we do get the negative side of getting people to be more stressed.
James: Hmm. Yeah, it's I had Alfie Kohn on a few months ago and he very much aligned with what you just said. And he to reverse it, he basically said you can pay people to do a little bit more of what they could be doing more of. That's pretty much the extent of the the power of incentives. And if you look at the research, it kind of supports how Ed Lazear Ed Lazear
Dan Ariely: Yeah.
James: I think you pronounce his name, his his study at Safelite where he's like, okay, I can pay people to infew install a few more windshields every day.
Dan Ariely: That's right.
James: Because they can go a bit faster, they can do it a bit more quickly. But what is so interesting about your study is that you used abstract creative problems to test whether those incentives, so everything you just said in your study was backed up, even with very large stakes. So even with a a month's
Dan Ariely: Good choice.
James: worth of pay, you couldn't pay people to be more effective. In fact, it yielded the opposite. It made them worse at solving those problems.
Dan Ariely: That's right. And I think that for pure physical tasks, you could get people to do a bit more.
James: Mm.
Dan Ariely: But I think with mental task, it's not clear to me that people are sitting there and saying, you know what? I'm just not going to be as funny. Like, I'm
James: Right.
Dan Ariely: writing this essay, but I'm going to be only 50 % funny. But if you paid me, then I would be like, it's unclear
James: Right.
Dan Ariely: to me that that's what people say.
James: Yeah. Unless
Dan Ariely: If I were paid, I would have been more funny, but with NUSPAY, I'm not releasing my funniness.
James: Yeah. Yeah.
Dan Ariely: It's completely unclear to me that we're not. And that means that when we examine things, we really need to think more in more details. What's holding people back?
James: Mm-hmm. And another the exception, of course, is if you've set a precedent already. If you've said
Dan Ariely: So if I now write it's what? Yeah.
James: last time I'm only going to pay you if you do that thing, if that if you set
Dan Ariely: That's right, that's right.
James: a precedent, then of course people will only start doing things for money. And that's the circularity, which is gonna bring us back to your
Dan Ariely: That's it.
James: your Fortune 500 executives, is that they've created a world where you only get people are only gonna do something if they're in exchange for a bit more money, and then kind of point
Dan Ariely: the church.
James: to that behavior as justification. That you need to incentivize people to do anything in the first place. So that's kind of what I was
Dan Ariely: That's it.
James: gonna ask you about, going back to your point on the executives. How do you break
Dan Ariely: Yeah.
James: that cycle?
Dan Ariely: Yeah, and we see it a lot with salespeople. That people say,
James: Mm, mm.
Dan Ariely: you know, this is true and I understand what you're saying, but salespeople are different. They just
James: Mm.
Dan Ariely: want to get paid. And you say, then you say, have you tried something else? And people admit, no, we have trained them. to work in this environment. So there was one year when there was a consulting company, almost 1,000 people, good size. And I went to the CEO and I said, look, you pay people large bonuses. I'm very interested in bonuses. Can we do a study? where we will look for the last three months of the year at what bonus people think they'll get, how much they're occupied by this, how productive they are. Let's look at the effect of bonus. And he said, no, no, no, I'm not going to let you do that. He said, my people are already overly obsessed with your bonuses. He says, everybody has an Excel spreadsheet. that tells them how much bonus they can expect and they update that Excel spreadsheet almost daily. And they look at it sometimes multiple times a day. He says, they're spending so much time obsessing about their compensation. And I said, do you think they actually work better because of that? said, no, I think they're spending a lot of time, a lot of cycles are wasted on this and it's not necessarily better, but I don't know
James: Mm.
Dan Ariely: what to do about it. I said, so you're telling me that we should study this because it's not a good system? He said, yes, but study it somewhere else. Not with my people.
James: Yeah, it's funny. I I think I hope you'd be proud of me for this one. I suggested a very similar thing with a friend of mine that works in sales operations at a large cloud organization. Exactly the same complaint. They spend so much time debating and arguing over sales credit and policy and recognition and splitting and all this kind of thing. I said, Why don't you split the group in two for the next cycle and give half of them a team based incentive, a super ordinate goal where they all share in the success and keep the other half of an individual incentives and just see what happens. And same same answer. it's not gonna happen. It's too important to people.
Dan Ariely: Yeah, yeah, it's very, very tough.
James: Mm.
Dan Ariely: And we do train people.
James: Mm.
Dan Ariely: the reality is that money is not just money. If I pay you a bonus of $1,000 and I pay the person next to you in the cubicle, 1,025, that's a difference that will upset you.
James: Mm mm.
Dan Ariely: And they will be happy with that because... It's not just money. It's a single signal of progress and recognition and contribution and lots of other things. The question is, do we want to communicate all of these things through money or should we communicate them in a different way? I think we would be better off communicating them in a different way. I think that money is not an efficient way of getting people to feel appreciated. Now,
James: Mm.
Dan Ariely: I want people to get paid well. Don't misunderstand
James: Right.
Dan Ariely: me. But if you say, want to use this money to motivate people, think it's not a good... It often doesn't get used as a good motivator. And there's
James: Mm.
Dan Ariely: lots more we can say about this, but I'll just give you one example. Let's assume that people don't know what is the best strategy for them to use. People come in, let's say they are salespeople, they have different options, they different strategies. People need to find their groove, they need to find their spot, they need to find their way, they need to find different ways for different customers. Is money the best motivated for learning process? The answer is no. Because if I'm afraid not to make money, I will not use extreme things. I will not try new things. Now, you can incentivize people. I'm not saying don't incentivize people, but I would, for example, much more incentivize people by trying new things than...
James: Incentivize the innovative mindset. Yeah. Yeah.
Dan Ariely: Yeah, that's right.
James: Well and that and that's part of the you know, the fundamental problem for me with corporate America is that we're in a world where the lifespan of companies is dropping and dropping. Innovation is now a prerequisite for survival because people can go off and vibe code your product in, you know, a couple hours and come back and compete with it immediately. And so what you need as a workforce, maybe there's some roles you don't need this so much, but most roles you just want constantly innovating. You want to in this constant cycle of innovating, of breaking and reinvention. And incentives don't help with that. So to your point, you if you couldn't find a way to incentivize that mindset and I do think one of the best examples of a company that's done this is Alphabet's X, their moonshot laboratory, and they incentivize failure. They pay out failed projects. They try and encourage that psychological safety that you mentioned earlier. So there are ways where you can reorient financial rewards to encourage that mindset
Dan Ariely: That's right.
James: I think. But it is difficult and it requires a const a com complete rethinking of how we use incentives.
Dan Ariely: Yeah, and I want to say one other thing about financial rewards. You know, when we have a law against something, part of the reason that the law works is because there are consequences. But part of it is because we say it's important. So if we have a law against crossing the street on red light, a little bit it defines. But the big part of it is we're saying this is important for society. And the same thing is true when companies say something like innovation. We can say we pay for innovation, and part of it is the payment, and some of it is the care, and you could do it in all kinds of other ways. By the way, my other big topic that I'm exploring these days is bureaucracy. I don't
James: Right.
Dan Ariely: know if you saw this, but I have a website called The Center for Advanced Bureaucracy.
James: I I haven't looked at that yet, no, I'll have to look at that afterwards. Okay.
Dan Ariely: And I basically complain about bureaucracy there. Of course, of course.
James: Hm. Do you remember the Hitchhiker's Guide quote for bureaucracy? There's a Plague on the Human Mind. the c I can't I can't remember the exact wording, but the what was it the what was it the species that was b so bureaucratic, the embodiment of bureaucracy? I can't remember the name of it. anyway, sorry, you continue.
Dan Ariely: I forgot the, yeah, yeah. I think Douglas Adams would have been shocked by how much bureaucracy
James: Yeah.
Dan Ariely: has taken hold and also the extent to which organizations have split
James: Mm.
Dan Ariely: into the bureaucratic part and the part with the mission. But bureaucracy is one of those things that kill. innovation.
James: Mm.
Dan Ariely: kills motivation. Bureaucracy basically tells people we don't trust you. We don't want to do anything different. Just keep on doing your job. Don't
James: Yeah.
Dan Ariely: do anything different. So I agree with you that the need for organizations to be flexible and to innovate is growing. But I also think that there is something about corporations that they create a bureaucratic engine and the bureaucratic engine has a very different goal. The bureaucratic engine has a goal of saying I just don't want anything not great to happen on my watch
James: Mm, mm.
Dan Ariely: and if nothing happens that's a success.
James: Yeah, that and to me the embodiment of that is Six Sigma, the idea of just limiting variation from a predetermined idea of what success constitutes. And to me that's just so counter to the concept of innovation and disruption.
Dan Ariely: Yeah, and it's very tricky, right? Because you say, I prefer cars with no mistakes.
James: Mm.
Dan Ariely: It's a really good thing. But you also say, but we can't learn anything
James: Mm.
Dan Ariely: without failing. So how do we understand this idea that we have to try?
James: Yeah.
Dan Ariely: that we have to try and we have to try harder and we have to fail and we when we fail we need to not punish ourselves on the failure we need to figure out was the process faulty
James: Mm-hmm.
Dan Ariely: and if the process faulty we should feel bad about ourselves but if the process was correct and we learned something new, that's great achievement. There's a CEO of a big company. sat next to him many, years ago, maybe 20 years ago. And he said, you know, my company is a little bit, people are too happy. They're too satisfied, we're doing well, nobody's hungry, nobody's doing any interesting experiments. People are just, you know, doing their job descriptions. And he asked me what would I recommend. I you want something extreme? He said, yes. I said, start celebrating failure. I said, do one day a year where you ask all the people who had failed projects to present some on stage, some posters. But I said, people are usually embarrassed about failure. They hide it. There's no way for the organization to learn about one failure to other people. But I said also, if you promote failure, you promote risk taking. That's the thing. If you promote risk taking and things go well, people get rewarded anyway. What you need to worry is about rewarding the downside. And he did this in an amazing way. It was one day, all failures, and the winner got about half a million dollars. So that's
James: Nice. So that's incentivizing the mindset, right? That is yeah.
Dan Ariely: basically saying we really care. We really care and we want...
James: Mm, mm. Put your yeah, put your money where your mouth is. Yeah.
Dan Ariely: Now, you don't give the awards to people who made a stupid mistake. You give the award to people who thought carefully through something,
James: Mm-hmm.
Dan Ariely: did something really incredible that didn't work out,
James: I really like that. I mean, again, that's kind of similar to Alphabet X and they even they do the presentations. I think there's even stories of having failed projects on plinth in the entrance hall to celebrate why this didn't work out. it's and this brings me to this next topic I wanted to ask you about, which is social norms and market norms. And in your environment, in that example that you just mentioned, everyone's too happy, no one's taken risks. Well, you've also tried Coach them to be that. You've created an economic equation where you do your job and you get paid. You do what's in your job description, you do what's next in the career ad and you'll get promotion. You get a rating of a four or a five and you'll get more merit increase, whatever it may be, but it's all economic, it's all transactional. And your point in what in predictably irrational was that as soon as you in introduce money, you shift it to a social norm to a market norm, and people start evaluating their decision making through economic. rationale rather than through social rationale. For example, I think one of the examples you gave is people like returning wallets. If you find a wallet, you get a kind of buzz when you give it back to that person. they say, thank you so much, thank you so much. But if you introduce an incentive, then it completely changes the nature of that exchange. So, well, let me let me stop there. so how can as how can companies balance that? Because you've got to pay people, you can't not pay people, but how do you create
Dan Ariely: Yep.
James: an environment that encourages these healthy social norms like You know, like giving feedback, like admitting failure, like helping to improve and learn with the
Dan Ariely: Yeah.
James: economic requirements of paying people for their jobs.
Dan Ariely: Yeah. first of all, companies do a lot of things to hide this relationship. Very few companies pay you by the hour. They say, we're paying you yearly, monthly. There's bonuses. It's kind of obfuscates a bit the relationship. But if you think about where our people's motivation to work come from, that's the first place to look. So for example, In lots of startups, people are motivated to help their friends. In one study, we asked people, imagine that there was a deadline. And if you don't stay until three or four in the morning, you're not going to make the deadline. Do you stay? Do you miss the deadline? Do you call your significant other? What do you tell them? Are they against it, for it, and so on? That was one condition. Condition two. One of your team members has a deadline. If they're going to do it, they need you to stay until 4 a.m., but it's their deadline. What do you think? Were people more likely to stay for their deadline or for their teammates?
James: So I would suggest but I've read a lot of your work, the latter. They're more likely to stay for to help somebody else. Yeah.
Dan Ariely: Yeah, that's right. That's right. Also, they felt that the spouse would be more supportive and so on. So when you think about it, companies create these informal ties between me and my direct boss, me and my team member, me and the company, and those ties are bigger than the paycheck. When people find out that the company doesn't appreciate them beyond the paycheck, and the company for them is just a paycheck, they stop all of those things. But there's lots of things of goodwill. I'll give you one example. Imagine a janitor in hospital. The janitor has a job description, water, soap, paper, and so on. One day, our janitor hears a family that is looking for their loved one, and they can't. They got lost. Do we want the janitor to stop what they're doing, take the family, show them where they're going? Of course, yes. One day, the janitor hears somebody crying. Do we want them to stop and call for help? Of course. One day the hospital hires a new janitor. They don't know what to do. Do we want our janitor to help them? The reality is that we want our janitor often to not do their job,
James: Mm-hmm.
Dan Ariely: to look around and say, where can I be most helpful? My job description is the average thing I should be doing. It covers the basics.
James: Mm-hmm.
Dan Ariely: But the reality is that what the organization really wants you to do is to look around and say, where can I be the most helpful? And by the way, all the examples I gave about the janitor means that you will have to come back at some point and work harder to finish their job. But that's what we want
James: Right.
Dan Ariely: people to do. And this doesn't happen if you pay people by the hour.
James: Mm, mm.
Dan Ariely: If you focus people on these market norms, that's my job. Water, soap.
James: That's good. Yeah.
Dan Ariely: I'm not doing anything else.
James: Yeah.
Dan Ariely: It's the social contract that says we're beyond that.
James: Mm.
Dan Ariely: The challenge with the social contract is that if you think you work for an organization with a social contract and then you find out that they don't view you this way,
James: Mm mm.
Dan Ariely: that's a huge issue. Right?
James: Yeah. And there's a wonderful I talked about this with friend recently in Mad Men where Don Draper says that's what the money's for. And then that's that kind of implicit relationship that companies would love to have with their people in many ways. It's just you do your job and you leave that awkward, irritating, irrational side of yourself to the side and just do what we tell you to do. But to your point,
Dan Ariely: Yep.
James: you don't really want people to just do what they're told to do. You don't just want them to fill the job description.
Dan Ariely: No, I think that the amount of creative power within people and innovation
James: Mm.
Dan Ariely: and passion is unbelievable.
James: Yeah.
Dan Ariely: I was recently at the ancient history museum and I got to go to the labs and to talk to the people who are excavating different things and I asked them I said look our ancient ancestors they were they were in survival mode by when they were doing pottery or wall painting or tools how much of it was to just get the job done and to be practical and efficient and how much of it was They wanted it to be beautiful and symmetrical and aesthetic. And they wanted it to show who they were as a craftsman. And they got different responses around different labs. But I think a lot of them said at about 50 % of the time was dedicated to non-functional things. Yeah.
James: That's what we do as a species. We improve. there was no economy when we invented the wheel, or when we discovered fire, or when we invented agriculture, even the early currencies. They didn't come about because someone had an incentive to do those things. They came about through curiosity and a desire to make the world a better place. And it kind of brings me back, I think Douglas McGregor, said it perhaps better than anyone, with Theory X and Theory Y. And I'd always encourage people to think, which do you believe in? So theory X assumes that no one wants to do anything. The only reason they do anything is if you incentivize them. They essentially have no interest whatsoever. And theory Y is that these are capable, curious, hardworking people. They want to work just as much as they want to go to bed. We just are a hard working species, and there's plenty of evidence for that.
Dan Ariely: This was.
James: And I just think a lot of the corporate world is still built on that theory X assumption that if we don't
Dan Ariely: That's right.
James: incentivize people, they're just not gonna do anything. If we don't If we don't have the right pay, they're not gonna innovate. But if we assume that that's a natural state first and that we're the ones getting in the way of that, that changes every calculus about what you do as an organization.
Dan Ariely: That's right. And if you tell people that you're a Theory X organization and you train them on this, you'll get it at some point. By the way, for me,
James: Right. Yeah.
Dan Ariely: using AI, so I started writing decision aids. So people ask me questions and I try to write a decision aid for that. And I find that I'm spending lots of time on little aesthetics. you know, the icons could be like this or,
James: Yeah.
Dan Ariely: you know, I don't like this or yeah, it's a, I think we have a real desire for aesthetics, for pride,
James: Mm.
Dan Ariely: for something that's just beautiful. And we're
James: Yeah.
Dan Ariely: happy to spend extra time on that.
James: yeah, so I want to talk about the book Misbelief, which I wanna put a copy of the cover up here. Again, audiobooks fantastic if it's on Spotify, found on Spotify as well. now the introduction, first of all I have to say you're a really good writer, and as someone that's trying to write. I think you do a wonderful job of putting yourself and you're putting your own sense of humor into the book. So I think they're really enjoyable books. Considering how academic you are and how many studies you've done, you do a wonderful job of making it very accessible. So well done.
Dan Ariely: Thank
James: but the introduction was one of the best introductions I've read. It was really, really entertaining. and I think even at the start of the introduction, you say don't skip over this introduction because this is slightly different. So I'd love you to talk about misbelief, where that came from and how you got caught up. into this whole world of misbelief because that was wonderful.
Dan Ariely: Yeah. So most of my research, I'm curious about something. I do research, and then I write about it. Misbelief was different because all of a sudden, I find myself accused of being part of the cabal that brought about COVID. And I get these attacks with death threats and hate and it is just shocking to me. And for a month, I tried to fight it. And I meet people, and I go in groups, and I defend myself. there was even somebody who wanted to see my agreement with Pfizer. And I said, I can show you my tax returns. I showed people my calendar over Zoom. I really kind of thought, if you only knew, none of this will happen. And of course, I failed dramatically. I only made things worse. And then I said, OK, clearly it's not working. I can't change anybody. Let me start talking to these people and try to understand what is going on. So I went into my toolkit of trying to understand the world. And it was a very tough two-year adventure. of trying to understand people who hated me. And I talked to somebody who wanted to be my executioner. There was somebody who believed that there will be Nuremberg trials 2.0 where people would be on trial and I would be among them. There was a person who had an online conversation on whether I should get hanging, public hanging, or life in prison. This was very aggressive. And I basically got to people and say, Forget about me, I want to understand you. Tell me what was your journey? When was the first time you started thinking the world is different? When was the first time you started changing your belief? So in the book, And the process of writing the book was the process of trying to make sense of my world. So usually I have research and then I write. Here it was all mixed. was writing
James: Mm-hmm.
Dan Ariely: and trying to understand at the same time.
James: Yeah. And I remember you said that you you got addicted at one point. you said that you were getting into these communities, you were engaging in these communities, and you are I think you put yourself somewhere to write and you gave yourself sort of isolation to help with that writing process, and you found yourself getting addicted to that dialogue and that conversation.
Dan Ariely: Yeah, is, it is the conspiracy theory kind of story is very, very addictive.
James: Mm, yeah.
Dan Ariely: Very addictive. And it's I'm jumping a topic, but I, my mother passed away a year and a little bit ago. And I started writing when she was deteriorating. And that was also a process of of writing as I was trying to figure out something tougher to do. the misbelief was the first time I used the writing process as a process to try and make sense of the world.
James: Mm-hmm. and in it is very practical advice for anyone with friends or family that is going through that funnel of misbelief as as you call it. And I think is it is it hopefully helpful that you end each chapter with, you know, with
Dan Ariely: Yeah.
James: some practical tips for how to help those people that you you might see slipping away from you, which is very sad, of course, when you see family members going into that world that you just can't follow them into.
Dan Ariely: Yeah, is the amount of sadness in families over being unable to talk about things and how it breaks people. I can't tell you how many people have reached out to me. There was one guy, a physics professor, who said he can't talk to his wife anymore.
James: Mm.
Dan Ariely: It's a very, very sad thing. very hard to completely reverse, very easy to make some progress.
James: As it's late there for you in Tel Aviv, I'll I'll draw a line under this, but I can speak to you for hours because we didn't even get into things like cognitive dissonance and like some of these other really interesting psychological studies. May
Dan Ariely: Happy to join another time.
James: maybe another time, maybe after your next book. So how's your next book going, by the way?
Dan Ariely: I'm writing now three things. I'm writing about the end of life. writing. Yeah.
James: Mm. Yeah, I've seen your Substacks actually. I recommend anyone subscribing to your Substacks on that. It's it's very interesting.
Dan Ariely: So you also know then that I recently went with a friend to Switzerland to help him, escort him when he was ending his life there. He made a very brave choice. He didn't want his family there.
James: Mm.
Dan Ariely: He asked me to go instead and I'm reflecting on what I learned from him and from that, but... So end of life is one topic, bureaucracy is another one, and then risk taking is the third.
James: Mm.
Dan Ariely: We're not taking enough risk to improve our condition. So
James: Mm.
Dan Ariely: we'll see which one will be first. I think it will be the end of life.
James: Okay. Yeah, it feels like the thing that you're focused on the most at the moment is it's probably for in the forefront of your mind. so I'll finish by asking you where people can find you. I follow you on LinkedIn and I think you've you provide some very, very helpful ideas and research on LinkedIn. I think your sub stacks are really interesting as well, and obviously you've got how many books now? Is it is it seven books you've published at this point?
Dan Ariely: There's a few more, I think Substack and LinkedIn are good, but I think Substack now that those thoughts around the end of life I think are potentially, like people think it's painful, but I think it's a little bit painful, but also invigorating. It's
James: Mm.
Dan Ariely: an interesting mix. The guy that I went with to Switzerland on the last day, we talked a lot about how you can be happy and sad at the same time.
James: Mm.
Dan Ariely: He was happy to end the suffering, sad, with some things, and they were not substituting, they were side by side. And I think dealing with these topics is both sad, but also make us feel that life is precious.
James: Yeah, yeah. It is it is a discussion that doesn't happen enough. it's almost socially taboo to talk about these things. and for some reason people don't really discuss I guess because you you want to avoid thinking about it, you want to avoid thinking about the end of life, no one wants to accept that they are mortal. I know I don't.
Dan Ariely: Yeah.
James: thanks so much, Dan. It's really a pleasure to speak to you. I'm looking forward to more of your writing. and hopefully we'll speak again soon at some point.
Dan Ariely: Lovely to talk to you anytime. Take
James: Okay. All right. Take care.
Dan Ariely: care.