Incentive Interview: Dan Ariely Rationalizes the Irrational
July 07, 2008
Economics professor Dan Ariely studies behavioral norms and how what we do doesn't always make sense
By Andrea Doyle
You're invited to a friend's house for dinner. Being the gracious guest you are, you bring a lovely bottle of wine. Let's say you up the ante a bit and bring that same lovely bottle of wine plus a monetary gift. An even more gracious gesture?
Absolutely not, says Dan Ariely, author of the newly released, best-selling book, Predictably Irrational, The Hidden Forces That Shape Our Decisions.
"We live in two worlds: one dominated by social exchanges and the other by market exchanges. Introducing market norms into social exchanges violates the social norms and hurts the relationship. The balance between social and market norms is even more tenuous in the business world, " explains Ariely. Social norms are deeply embedded in community. They are warm and fuzzy—instant payback is not required. An example is if a neighbor asks for help moving a couch. You do the neighborly thing and rush over to help. Market norms are very different. They involve wages, prices, rents, interest and cost-and-benefit decisions.
Forty-one-year-old Ariely, a James B. Duke professor of Behavioral Economics at Duke University, has done numerous studies and experiments exploring the effects of social and market norms in all areas of life, including as they apply to the business world.
Cash or Trip?
He has researched the effectiveness of giving an employee $500 in cash as an incentive or a trip to the Bahamas. He realizes that some may say, give me the cold, hard cash. They rationalize, "I'll use it toward a vacation to the Jersey shore plus buy an iPod." Not the best choice for the employer, says Ariely.
"The [Bahamas] trip will provide a boost to the social relationship between the employer and the employee, and by doing so, provide long-term benefits to everyone," he says. "Imagine the employee took the [incentive trip] over a weekend. He or she will come back to the office feeling great loyalty. If they took the cash, there would not be any increased loyalty. If your boss asks you to stay late the following week, if you had taken the [Bahamas trip], you'd feel a sense of obligation. If you had taken the money, you'd ask how much more you'd get paid for the effort. "Two types of motivation are governed by two types of norms: market and social. Motivation took on added importance to Ariely when he became a faculty member at the Massachusetts Institute of Technology 10 years ago and had to motivate students and non-students working for him. Today, the Alfred P. Sloan Professor of Behavioral Economics at MIT's Sloan School of Management and a Duke University visiting professor, Ariely has two children, a two-year-old daughter, Neta, and a five-year-old son, Amit. He admits that the knowledge he has accumulated in decision making and behavioral economics has helped his personal life as well, as he used it to convince his wife, Sumi, to marry him. "A decision that was in my best interest but not necessarily in hers," he adds with his characteristic wit. Ariely became fascinated with irrationality while overcoming burns to more than 70 percent of his body that he sustained in an explosion in Israel. "Being in the hospital for more than six months separated me from the circle of life. I was an outsider looking at things I used to do as a bit odd, not natural," he explains.
It took nurses an hour to take the ban-dages off his body daily. "It was an extremely painful process, as the bandages would adhere to my flesh, because there wasn't any skin there," he says. "They thought it best to start from my feet and end at my head, and rip them off as quickly as possible. I tried to reason with them to slow down, but they told me they had the right approach."
When he left the hospital, Ariely embarked on a series of experiments about pain. He learned the nurses were indeed wrong. If they had started from his head and ended at his feet and stretched the process out over a longer period of time, he would have experienced less pain. "How could that be? They had good intentions, plenty of experience, but nevertheless got things wrong." Thus began the germination of Predictably Irrational.
 Can't Buy Motivation
Money can be the most expensive way to motivate people, says Ariely. Social norms are not only cheaper, but more effective as well. Market norms, with their emphasis on higher salaries, more income and more spending, have taken over our lives in the past decade. A return to some of the old social norms might not be so bad after all, says Ariely, and in fact, might bring some civility back to our lives.
Take open-source software. If you find a bug in Linux or another program, you can post the problem on one of the bulletin boards and somebody will respond to your request and fix the software, on their own time, for free. If you had to pay for this level of service, you would have to pay them an awful lot, says Ariely. "This community thrives on other motivation, on a sense of ownership, pride and in belonging to a community," he adds. "It's unbelievable to think that Microsoft is afraid of this group that is not getting paid a dime."
It seems there may be something to the old adage, "There's more to life than money."
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