In mid-July, a crowd filled the lower level of The Regulator Bookshop in Durham beyond capacity for a talk by the Duke professor and best-selling author Dan Ariely. His new book, The Upside of Irrationality, follows on the heels of his 2008 best-seller, Predictably Irrational, which explained how and why our brains don't work. Apparently, that's a message a lot of us want to hear.
Such is the draw of behavioral economics, a mashup of plain-vanilla economics, psychology, decision theory and even neurobiology. With its upbeat title, the new book is apparently being marketed as a sort of combination business lit/ self-help manual, divided as it is into two parts, "The Unexpected Ways We Defy Logic at Work" and "at Home." In the reading, though, it's much the same as the first book, which simply collected and discussed his findings. He needn't have bothered to justify the sequel: As the audience discovered at the Regulator, Ariely is an engaging thinker with a knack for designing clever studies, and more of the same is a good thing.
Among the counterintuitive results in Upside are the answers to such questions as, Does paying people more induce them to do better work? (No.) Do we overvalue furniture we put together ourselves? (Yes.) Does buying things make us happy? (No. But you knew that, right?) Do we care more about one starving child in Africa than millions of them? (Yes.) Many of these findings have already dribbled into the mainstream press over the last few years, so they'll be familiar to habitual New York Times readers and NPR listeners. Here they're ably summarized in easily digestible chunks of text.
In Ariely's telling, much of the research in his field involves dangling a few dollars in front of college students (or, to raise the stakes, poor villagers in rural India) and having them perform simple tasks. These kinds of experiments have been a remarkably fecund source of his insights into human nature, and he generally seems on sure footing when he extrapolates from the lab to the real world. If you'd pay a nickel for someone else's crummy origami frog but 25 cents for your own, and this result is repeatable and consistent, that's pretty good evidence that people inordinately prize the fruits of their own labor. (He calls it "the IKEA effect.")
At times, Ariely has seemed to place undue confidence in his methods. Predictably Irrational included a particularly striking example, when he polled a lecture hall to find out how much his students would pay, hypothetically, for something that didn't exist and that none of them would actually want (in this case, tickets to a poetry reading by their professor). He doesn't make quite so speculative a leap in Upside, but the reader still sometimes wonders whether his conclusions are quite as universal as he believes.
Another weakness is that sometimes the "rational" supposition he refutes is a bit of a straw man. In the first chapter, "Paying More for Less: Why Big Bonuses Don't Always Work," he describes an impressive series of experiments that prove that people's performance actually suffers when big payouts are at stake. He concludes that paying large bonuses to business executives is a poor way to improve their effectiveness. But this supposes that the runaway earnings of CEOs and investment bankers are essentially a misguided incentive program, when the phenomenon is perhaps better explained by classical economics: as a way to guard against them taking their services elsewhere. One of the book's other chapters, "On Adaptation: Why We Get Used to Things," sheds more light on the subject. A $68 million bonus might sound like a lot of money to working stiffs and Duke professors, but to the CEO of Goldman Sachs, it's just an honest day's pay for an honest year's work, not likely to produce the performance anxiety Ariely measured in Indian backwaters. And it's peanuts compared to the compensation of top hedge fund managers, against whose fortunes Goldman chief Lloyd Blankfein surely compares his own.
Politically speaking, Ariely's larger point—that executive pay owes less to the mathematically precise workings of efficient labor markets than to the kludgy brains of irrational human beings—is an important one. Indeed, the political dimension of the work of Ariely and his fellow behavioral economists has attracted a lot of attention lately for its powerful potential to shape public policy. For instance, on his blog, Ariely describes studies of various countries' enrollments in organ donor programs, which are extremely dependent on whether the program is "opt-in" or "opt-out." Understanding how a seemingly trivial change can profoundly influence our decisions can help us turn our cognitive glitches to our advantage.
While Upside touches briefly on questions of policy, its bent is primarily personal; more so for including, like Ariely's first book, a lot of autobiographical material. As a young adult, Ariely suffered massive third-degree burns while serving in the Israeli Army, an incident that profoundly altered his life path. His strategies for overcoming the serious physical challenges he faced would inform his later research; for instance, he hewed strictly to an onerous drug protocol by scheduling a "movie night" at home to coincide with thrice-weekly, grievously unpleasant interferon injections. The reward helped his gratification-seeking wetware submit to his long-term self-interest.
The story shows how Ariely's injury led him to trust his mind more than his body, which is really what his work is all about—subjecting our "gut" responses to intellectual review. That's the fittingly (predictably?) rational advice he gave his audience at the Regulator at the end of his highly entertaining and informative talk: "How would you ever know if your intuition is good or not? The only way to do it is to doubt your intuition ... As you make decisions, think to yourself, how much is my decision based on some gut feeling that I have, with no evidence, and how much is it based on something I really know. And if you don't know about it—test your intuition."