openpolitics.com

Dan Ariely on building an understanding of how humans behave from the ground up.

So what is the motivation for people who do standard economics to discount how irrational human beings are?

It’s not that they want to do it, but economics is a very beautiful framework. Imagine that somebody from the government comes and tells you, “I want to figure out how to do a healthcare system.” If you’re somebody like me, you would say, “I have some ideas, I have some experiments, let’s run them. And in five years, maybe 10 years, I’ll give you some answers or guiding principles.” But if you have somebody who comes from the perfectly rational perspective, their lives are simple. It’s much more straightforward.

But what I think is the sin of economics is that they are not only a descriptive study, like physics, chemistry or biology, which all describe nature from very different perspectives, none of which is complete. Economists say, “We also will tell you how to live your life.” So it becomes prescriptive as well.

.. Their idea was to take the top 10 percent of teachers in each school and give them a bonus, and they asked me what I thought.

.. I explained that every particular solution is an antidote to some specific problem. If you think that the solution is to give the top 10 percent of teachers a bonus, it means that you think that teachers know what to do, and the only thing keeping them from doing it is that they are lazy, and they need another motivation.

.. Not only that, but this particular solution requires that every teacher thinks they could be in the top 10 percent. Right? Because if only the top 10 percent think they could be in the top 10 percent, it will not motivate the bottom people. So people need to be over-optimistic in this scenario.

And what was clear in that example, to me, was that they had this very naive notion: “Let’s just pay people and somehow things will magically become better.”

.. Now if this ministry of finance got their way, the only thing they would guarantee is that none of the good teachers would want to help the bad teachers because then their bonuses would be at stake, right?

.. people clearly would like a bigger bonus, but can they will themselves to perform better? And finally, to what extent is thinking about the bonus a good thing?

.. imagine I paid you $10 per mile that you ran or a million dollars. Right? If I paid you a million dollars, you could will yourself to run more. But if I paid you a bigger bonus to become funnier or more creative, that is not something that you can actually control.

.. the “IKEA effect”: when we build something ourselves, we not only like it better, but believe other people will love it, too.

.. “Tell me what to draw and I will draw it,” or “You draw and I’ll tell you what to draw.” And then they came out of the room and the research assistant stood in front of the kid, holding the drawing, and said to the kid’s mother, “Look what I did.”

.. There are professions that don’t need that help because it’s clear how difficult it is. People who run a marathon or train to be an Olympic swimmer don’t have to tell you how much they practice and how difficult it is. But when you do something like writing, it is very, very difficult to figure out how much effort actually went into it. So we kind of have to tell people because it does change how we think people view what we have done.

.. But if you’re a vegetarian, you could say to yourself, “Let me be vegetarian 85 percent of the time.” What would happen if that’s the rule that you set for yourself? You would fail. You would not fail all the time, but you would fail often, because it’s hard to keep a rule that is about 85 percent of the time. So people basically become vegetarians all the time and it’s an easier thing to stick to

.. a Ulysses contract: We constrain our behavior now to force ourselves to do something in the future. For example, have you ever made an appointment with a trainer in the gym and paid in advance, and if you didn’t show up, you couldn’t get the money back?

.. You write that as soon as the monetary system is introduced, it completely undermines the social contract.

.. I asked one bank, “What do you do with people when they get a bonus of more than a million dollars?” And they said, “Nothing. We don’t even shake their hands.” I was quite outraged. It’s a public company and they are wasting our money! I would much prefer if they paid people eight hundred thousand and invited them for a beer. But they’re so happy to give our money away that they don’t even think about what else they can do, and they’ve created a culture in which they don’t even say, “Congratulations, and thank you very much, I really appreciate your help.”