The Upside of Irrationality - Dan Ariely at the LSE

Wednesday, October 27, 2010

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One of the world’s foremost authorities on behavioural economics was on sparkling form in a lecture to a packed audience at the LSE tonight. Dan Ariely is the author of Predictably Irrational and his new book The Upside of Irrationality draws the reader into a fresh array of experimental and empirical work on psychological biases in our behaviour when we are faced with countless decisions across different time frames

Click here to download Mo Tanweer’s superb econoMAX article on Behavioural Economics

According to Ariely, two of the most important lessons to glean from behavioural studies are firstly just how little we know about what drives behaviour – in our relationships, when making financial decisions and at work. Secondly how much the environment matters when shaping our final choices? His hour-long lecture tonight focused on three chapters of his new book – namely problems of self-control, motivation in the workplace and the power of humans to adapt to changing circumstances.

For those who know the back story, this final topic for discussion meant an unavoidable journey to some of Dan Ariely’s darkest days in the aftermath of the explosion that burnt most of his body and necessitated in excess of three years of intense daily hospital treatment and countless skin grafts. The Upside of Irrationality is a deeply personal book (and in my view a brighter and more inspirational read than Predictably Irrational). The personal details invite all of us to think about the choices we make and in difficult times those choices can leave us with burdens that last a life time.

Problems of self control

Humans have huge problems in exercising self-control not least because what is good for us in the dim and distant future seems much less attractive in the here and now. We have good intentions – to diet, to exercise, to engage in safe sex and not to text when driving. But if we allow ourselves to dramatically discount the long-term benefits of these choices, the pull towards immediate gratification can be unstoppable.

Can behavioural economics help shape a new genre of public policies to nudge us to make better choices? How many of you have texted someone when driving a vehicle? (Plenty in the audience at the LSE said that they had) Would banning this reduce the risk of serious accidents? Well not necessarily so – in some US states where federal law bans this behaviour, the accident risk has climbed higher because drivers (afraid of being caught texting on their mobiles) are doing so by dropping their hands lower from the wheel – sacrificing control of the steering wheel.

Some of the recent experimental work finds that reward substitution can have a marked impact on our behaviour. This involves getting people to behave in the right way for the wrong reasons. So for example the EcoPets website allows you to sponsor a virtual animal whose life expectancy depends on your energy consumption!

Binding pre-commitments also have a role to play in some decisions and Dan’s talk contained a couple of crackers! For those whose motivation to get up early and have a run or get to work on lectures on time is sorely tested every weekday, how about an alarm that connects to your bank account and is assigned to pay money into a charity that you hate if you press the snooze button! Or have a look at Stickk – a web site set up by two economists interested in how making financial pre-commitments can boost your will power to exercise or lose weight. And X3 Watch tries a novel approach to dissuade people for accessing pornography on the web. It is set up so that every time you log onto a porn site it sends a message to a designated recipient (your Mum!) and it also does so if you try to uninstall the software!

The second element of the Ariely trilogy tonight was about motivation at work. The pre-eminence of the knowledge economy is changing the way in which people think about what really drives us in our jobs. Dan Pink has written plenty about this and this animated talk from a recent lecture at the RSA in London is a masterpiece – it is always worth a look and one that ambitious students will enjoy.

For behavioural economists the key is to consider which parts of a job move beyond the simple function of work. It turns out that ownership and recognition of work is underestimated by many employers. And that when we experiment with paying people for performing either rudimentary or more complicated tasks we find that humans attach significant value to jobs that are meaningful, have a purpose, allow them to develop a mastery and in which they can build an identity, take pride and which expands their horizons. We value our own creativity be it in the classroom, the office or on the coaching field.

Good employers recognise this and give their employees enough trust and freedom to allow them to breathe and be innovative and use their imagination. It is something that I did not appreciate enough during a twenty year career as a Head of Economics, but perhaps I can put that right in my final few years as a teacher.

The power of humans to adapt

The final stanza in Dan’s talk was about the incredible power of humans to adapt to circumstances often well beyond their own control – life changing turning points that might ordinarily cause us to give up on life and wither away.

During his discussion of his own injuries and a moving description of how he started – after many years – to think about dating and who he could meet, my mind turned to those with horrific injuries in the theatre of war or from accidents or natural disasters. The phenomenal success of the paraplegic sports community around the world is testimony to the courage of people to adapt to their new circumstances, find fresh challenges and set fantastic new standards in their chosen sports.

The many positive response of families afflicted by random acts of violence or miscarriages of justice in fighting for their cause and perhaps bringing about changes in legislation is another example of the adaptation process at work. Out of intense pain and agony can come pleasure, and that sense of fulfilment is perhaps intensified by the pain as well as acting as a partial healing mechanism.

For Dan, a reordering of the importance of aesthetics helped him to find love and to start a family – it was a heart warming and moving conclusion to a superb talk which confirmed Dan Ariely as a rock star on the economics speaking circuit! Judging from the immense queue forming for a book signing as I left the LSE tonight, the Upside of Irrationality will be a sure fire success – it is richly deserved.

Click here to download Mo Tanweer’s superb econoMAX article on Behavioural Economics

Categories: Behavioural Economics Teaching of Economics
Tags: economics, pay, risk, dan ariely, choices, predictably irrational, self control, upside of irrationality

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The Upside of Irrationality - Dan Ariely at the LSE

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