Why do we do things that make no sense?

Last year I took a really terrific class on Coursera that behavioral economist Dan Ariely at Duke University offered. I wish it were still available to take so that I could refer you the videos, which were exquisite, both in content and in production value. I really hope he’ll offer it again. I want to take it again! The course:

Ariely-header

Behavioral economics is a pretty-new subfield of economics. It explores why we do what we do. Traditional economics has focused on the “rational consumer” who will react in predictable ways to market forces; for example, the rational consumer will buy more items as a price lowers and fewer as it rises. But this is not always so in real life, and behavioral economics explores why.

Why does someone agonize for hours, days, or weeks over buying a thousand-dollar leather couch, for example, but not think twice about spending the same amount to upgrade a car’s seats to leather? It’s the same amount of money for a leather chair either way, so the rational consumer should devote the same amount of time to making either decision.

Why will someone stand in line for an hour for a free ice cream at the Ben & Jerry’s factory in Vermont (I’ve seen this happen first-hand) — getting, at most, a $5 cup of ice cream — but be unwilling to stand in line for an hour for a $5 bill? Or even a $10 bill, which would buy the same ice cream, and have money left over? The rational consumer would stand in line for $10 in cash rather than for $5-worth of ice cream. But people don’t. (At least, not when Ariely asked them if they would.)

First World examples, obviously. But Ariely and his students went to India and performed experiments to replicate some pay-for-performance experiments they’d done in the United States. Pay-for-performance is when a business offers bonuses to employees who meet or exceed a performance level that the company determines. In the U.S., the experimenters found that higher pay actually got a lower performance result on intellectual tasks — the opposite result of what traditional economics predicts. In India, they found the same thing to be true.

Why was performance lower? Because stress inhibits creativity, and the more money offered, the more a person wants to do well and the more they get stressed out. You can read about these experiments and others in Dan Ariely’s books.

I thought about this again last night while I was reading the blog World-Wide Open Mind and saw a video that RSA Animate superimposed over a TED talk that Daniel Pink (author of Drive and other best-sellers on behavioral economics) gave on pay-for-performance and the experiments that Ariely’s group did in India.

I challenge you to watch a minute of this video and not finish it. The animation is pure artistry, the kind of thing I couldn’t even imagine, much less execute.

This research is something to ponder when wondering why otherwise-intelligent people (including ourselves) make poor decisions or lose their creativity. I’ll have more to say about it in future posts.

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4 replies

  1. Very interesting. I *just* read a very good article this morning on the same topic. What are the chances?

    http://www.thedailybeast.com/articles/2014/01/05/the-behavioral-economics-of-your-new-year-s-resolutions.html

    • Thanks for the link!

      I’ll have to do a future post on Stikk, a unique (and delightfully evil) tool for self-motivation. Also, later this month I’ll be embarking on an EdX course called “Unlocking the Immunity to Change: A New Approach to Personal Improvement.” If it offers any interesting ideas, I’ll probably comment on them.

  2. Love Dan’s work !!

    Keep writing … and have a terrific 2014 !!

    Brian

    ps – here are the Navy Seals of rational thought http://lesswrong.com/

    On Sun, Jan 5, 2014 at 12:52 PM, Flabby Bra

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