The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home by Dan Ariely

Published by: HarperCollins Publishers: 2010
Pages: 334pp
Reviewed by Lana Atanazevich

If we offered nonprofit CEOs and public policy officials the incentive of banker-sized bonuses, would it lead to a more vibrant, high-performing social sector? Wouldn’t it be nice if one could easily mobilize organizations’ constituencies behind the mission? Why is it that an appeal on behalf of an individual can garner nationwide support, while the more dire suffering of masses often elicits little action?

Questions of this sort confound social entrepreneurs, nonprofit leaders and business executives alike. Some surprising answers can be found through the exploration of human irrationality – which may have an upside, according to Dan Ariely’s new book, a sequel to his earlier work, Predictably Irrational.

In The Upside of Irrationality, Dan Ariely, a professor at Duke, explores the puzzling question of why we consistently “overpay, underestimate, procrastinate and overvalue what we create,” through the lens of behavioral economics, the vibrant new science bridging psychology and business. Presented with these human flaws, Ariely attempts to “figure out how we can get the most good and least bad out of ourselves” when making choices about money, work, relationships and, ultimately, happiness.

Why does an appeal on behalf of an individual garner nationwide support, while the suffering of masses often elicits little action?

Ariely’s research is lodged in a sub-sector of economics that, until as recently as 15 years ago, was considered a marginal, exotic endeavor. Now behavioral economics can claim a Nobel Prize, a critical mass of empirical research and a history of upending the classical and neoclassical theories (based on the premise that people make rational, self-interested decisions that weigh costs against benefits and maximize value and profit for themselves). The new approach allows practitioners and theorists to depict how actual human beings operate at an intersection of Adam Smith’s “invisible hand” and the irrational, self-sabotaging mind. It’s little wonder that books like Ariely’s Predictably Irrational and its bestselling sequel, along with Malcolm Gladwell’s Outliers and Steven Levitt’s Freakonomics, are flying off the shelves.

Although he started out as a physics and mathematics major and later became a professor of marketing with no formal training in economics, Ariely is considered one of the leading behavioral economists. Drawing on the social research methods that made Predictably Irrational one of the most talked-about books of the past few years, Ariely’s experiments reveal such idiosyncrasies as the “IKEA effect” (if you put effort into building something, pride and sentimental attachment are likely to make you overvalue your creation) and the “identifiable victim effect” (why we respond to one person’s plight but not to the suffering of the masses). We also learn how identity and labor are intrinsically connected and how devaluation saps the meaning out of work (people are hard-wired to seek meaningful ways to earn a living and spend their time). And insights on why outsized bonuses may actually reduce the quality of an executive’s performance will allow to insert the helpful phrase “studies have shown” into arguments with one’s banker friends.

The Upside of Irrationality is particularly relevant for the nonprofit sector. When scarce resources are allocated to serve the interest of critical social change, it is worthwhile knowing what drives people to choose long-term gain over instant gratification, break bad habits and feel ownership and pride for their actions.

Some specific lessons from the book:

1. Work performance and motivation

Consistent with the findings about market vs. social norms, salary alone will not motivate people to work, let alone risk their lives, for a cause; social norms, such as pride in one’s profession and a sense of purpose, motivate people to do their best. In fact, money is very often the most expensive way to motivate people. “Social norms are not only cheaper, but often more effective as well.” And while big CEO bonuses may not be an inherently nonprofit problem, the lessons are particularly applicable for the sector where monetary incentives are hardly the primary motivators.

2. Work climate and change

The tendency to fall in love with our creations (the “IKEA effect”) can be applied to building ownership of change, planning processes and new policies.

3. Fundraising

The “identifiable victim effect” has direct implications for donor support and crafting effective fundraising campaigns, a well-illustrated point in the book.

Ariely’s key concepts – adverse effects of over-motivation, decisions under the influence of emotions, innate desire for revenge, to cite a few – shed light on events as recent and dumbfounding as the debt crisis; the financial crisis of 2008 and the subsequent rage over the bail-out and CEO compensation; and the fear-induced dips in the stock market in 2011. (Somehow, the traditional economic notion that the market is self-correcting just doesn’t seem to cut it.)

We learn how identity and labor are intrinsically connected and how devaluation saps the meaning out of work.

Ariely does raise questions about the validity and reliability of experiments carried out, for the most part, in a university lab. Can we safely extrapolate his findings to the larger population? How would his theories apply to different personality types and other cultures with different collective psyches and social norms? There is also an ironic possibility that Ariely, the researcher, could be susceptible to the fallacy he describes: “We think we see with our eyes, but the reality is that we largely see with our brains. Our brain is a master at giving us what we expect to see.” The jury is still out on this question, but putting it on the agenda through this book is of value in and of itself.

In the end, Ariely’s new chronicle of human irrationality may seem simplistic to some, and replete with sometimes superfluous details of his autobiography. The upside? A front-row view into one’s own irrational mind and a more nuanced understanding of the universality of the human experience linger long after the book is finished. And while some of the conclusions are obvious, Ariely’s elegant synthesis and his thought-provoking, engaging style (sans academic jargon and bafflegab) make for a pleasurable read.

STRATEGY MATTERS © No 6
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