First read his amazing book “Predictably Irrational.” But if you read and loved it, then this is a continuation with some more examples - mostly organizational. He also catharticly details his own painful injuries in every chapter.
The real goal of behavioral economics: to try to understand the way we really operate so that we can more readily observe our biases, be more aware of their influences on us, and hopefully make better decisions.
We routinely behave as if sometime in the future, we will have more time, more money, and feel less tired or stressed.
“Later” seems like a rosy time to do all the unpleasant things in life.
Over-motivation to perform well can stem from electrical shocks, from high payments, or from social pressures.
In all these cases humans and nonhumans alike seem to perform worse when it is in their best interest to truly outdo themselves.
What is the correct way to pay people without overstressing them?
Pay employees on a straight salary basis.
Offer employees smaller and more frequent bonuses.
Another approach might be to offer employees a performance-based payment that is averaged over time - say, the previous five years, rather than only the last year. This way, employees in their fifth year would know 80 percent of their bonus in advance (based on the previous four years).
Imagine that you work for some company and your task is to create PowerPoint slides. Every time you finish, someone takes the slides you’ve just made and deletes them. As you do this, you get paid well and enjoy great fringe benefits. There is even someone who does your laundry. How happy would you be to work in such a place?
Contrafreeloading: many animals prefer to earn food rather than simply eating identical but freely accessible food.
Among all the animals tested so far the only species that prefers the lazy route is the commendably rational cat.
Maybe we feel meaning only when we deal with something bigger.
Perhaps we hope that someone else, especially someone important to us, will ascribe value to what we’ve produced?
Maybe we need the illusion that our work might one day matter to many people.
That it might be of some value in the big, broad world out there.
Doing something that is somewhat connected to our self-image can fuel our motivation and get us to work much harder.
Without an audience, I would have very little motivation to work as hard as I do.
The translation of joy into willingness to work seems to depend to a large degree on how much meaning we can attribute to our own labor.
Sucking the meaning out of work is surprisingly easy. If you’re a manager who really wants to demotivate your employees, destroy their work in front of their eyes. Or, if you want to be a little subtler about it, just ignore them and their efforts.
On the other hand, if you want to motivate people working with you and for you, it would be useful to pay attention to them, their effort, and the fruits of their labor.
One of the dangers of work-based technology. Modern IT infrastructure allows us to break projects into very small, discrete parts and assign each person to do only one of the many parts. In so doing, companies run the risk of taking away employees’ sense of the big picture, purpose, and sense of completion. Highly divisible labor might be efficient if people were automatons, but, given the importance of internal motivation and meaning to our drive and productivity, this approach might backfire.
Allow employees to feel a sense of completion and ensure that a job well done is acknowledged.
Semi-cooked meals: The delicate balance between the desire to feel pride of ownership and the wish to not spend too much time in the kitchen.
Creators had a substantial bias when evaluating their own work. Noncreators viewed the amateurish art as useless and the professional versions as much, much more exciting. In contrast, the creators saw their own work as almost as good as the experts’.
Once we build something, we do, in fact, view it with more loving eyes.
We are largely unaware of this tendency; we mistakenly think that others love our work as much as we do.
Does this mean that companies should always require their customers to do the design work and labor on every product? Of course not. There is a delicate trade-off between effortlessness and investment. Ask people to expend too much effort, and you can drive them away; ask them for too little effort, and you are not providing the opportunities for customization, personalization, and attachment. It all depends on the importance of the task and on the personal investment in the product category.
To increase your feelings of pride and ownership in your daily life, you should take a larger part in creating more of the things you use in your daily life.
Investing more effort does, indeed, increase our affection, but only when the effort leads to completion. When the effort is unfruitful, affection for one’s work plummets.
We like sitting in a garden but don’t want to get sweaty and dirty digging up a garden space or mowing the lawn, so we pay a gardener to cut the grass and plant some flowers.
We want to enjoy a nice meal, but shopping and cooking are too much trouble, so we eat out or just pop something into the microwave.
Sadly, in surrendering our effort in these activities, we gain relaxation, but we may actually give up a lot of deep enjoyment.
It’s often effort that ultimately creates long-term satisfaction.
It might be that others can do better wiring work or gardening, but you might ask yourself, “How much more will I enjoy my new television/stereo setup/garden/meal after I work on it?”
If you suspect you would enjoy it more, maybe those are cases where investing more effort will pay off.
Even if their ideas weren’t superior to ours overall, it could have been that our participants’ notions fit better with their own unique perspectives of the world. This principle is called an idiosyncratic fit. As an extreme example of this, imagine that a devoutly religious individual answered the question “How can individuals help to promote our ‘gross national happiness’?” by suggesting that everyone attend religious services daily. A steadfast atheist might respond to the same question by suggesting that everyone give up religion and focus instead on following the right kind of diet and exercise program. Each person may prefer his or her idea to ours - not because he or she came up with it but because it idiosyncratically fits with his or her underlying beliefs and preferences.
Not-Invented-Here bias is fondly called the “toothbrush theory.” The idea is that everyone wants a toothbrush, everyone needs one, everyone has one, but no one wants to use anyone else’s.
Regardless of what we create - a toy box, a new source of electricity, a new mathematical theorem - much of what really matters to us is that it is our creation. As long as we create it, we tend to feel rather certain that it’s more useful and important than similar ideas that other people come up with.
If you helped your kids plant vegetables in the garden: Chances are that if your kids grow their own lettuce, tomatoes, and cucumbers and help prepare them for a dinner salad, they will actually eat (and love) their veggies.
The threat of revenge - even at great personal expense - can serve as an effective enforcement mechanism that supports social cooperation and order.
The word “sorry” completely counteracted the effect of annoyance.
Walter Weckler further observed that “revenge has no more quenching effect on emotions than salt water has on thirst.”
Participants who had been mildly injured reported that the hot water became painful (pain threshold) after about 4.5 seconds
Those who had been severely injured started feeling pain after 10 seconds.
More interestingly, those in the mildly injured group removed their hands from the hot water (pain tolerance) after about 27 seconds, while the severely injured individuals kept their hands in the hot water for about 58 seconds.
There seems to be generalized adaptation involved in the process of acclimating to pain.
People with injuries learn to associate pain with hope for a good outcome.
This link between suffering and hope eliminates some of the fear inherent in painful experiences.
On the other hand, the two chronically ill individuals who took part in our pain study could not make any connection between their pain and a hope for improvement. They most likely associated pain with getting worse and the proximity of death. In the absence of any positive association, pain must have felt more frightening and more intense for them.
Job satisfaction among British workers was strongly correlated with changes in workers’ pay rather than the level of pay itself.
In other words, people generally grow accustomed to their current pay level, however low or high.
Hedonic adaptation can be a problem for effective decision making because we often cannot accurately predict that we will adapt - at least not to the level that we actually do.
Think again about the paraplegics and lottery winners. Neither they nor their families and friends could have predicted the extent to which they would adapt to their new situations.
Of course, the same applies to many other variations in our circumstance.
We expect that we will be miserable for a long time if things do not work out the way we hope
We also think that we will be enduringly happy if things go our way.
But in general, our predictions are off base.
You may think that taking a break during an irritating or boring experience will be good for you, but a break actually decreases your ability to adapt, making the experience seem worse when you have to return to it.
When cleaning your house or doing your taxes, the trick is to stick with it until you are done.
Slow down pleasure. A new couch may please you for a couple of months, but don’t buy your new television until after the thrill of the couch has worn off.
The opposite holds if you are struggling with economic cutbacks. When reducing consumption, you should move to a smaller apartment, give up cable television, and cut back on expensive coffee all at once - sure, the initial pain will be larger, but the total amount of agony over time will be lower.
We have a tendency to take the safe and predictable path at work, and by extension in our personal life, and do the things that provide steady and reliable progress. But real progress - as well as real pleasure - comes from taking risks and trying very different things.
Imagine that you have just arrived at a party. As you walk in, the host writes a number on your forehead. He instructs you not to look at the mirror or ask anyone about it.
You look around the room and see that the other men and women have numbers from 1 to 10 written on their foreheads.
The host tells you that your goal is to pair up with the highest-numbered person who is willing to talk to you.
Naturally, you walk up to a 10, but he or she gives you one look and walks away.
You then look for 9s or 8s and so on, until a 4 extends a hand to you and you go together to get a drink.
This simple game describes the basic process of assortative mating.
“One man’s death is a tragedy, but a million deaths is a statistic.” - Stalin
“If I look at the mass, I will never act. If I look at one, I will.” - Mother Teresa
“The identifiable victim effect”:
Once we have a face, a picture, and details about a person, we feel for them, and our actions - and money - follow.
However, when the information is not individualized, we simply don’t feel as much empathy and, as a consequence, fail to act.
Once we choose to act on our emotions, we make short-term decisions that change our long-term situation.
If we do nothing while we are feeling an emotion, there is no short-or-long-term harm that can come to us.
However, if we react to the emotion by making a decision, we may not only regret the immediate outcome, but we may also create a long-lasting pattern of decisions that will continue to misguide us for a long time.
Before committing to any long-term relationship you should first explore your joint behavior in environments that don’t have well-defined social protocols.
Keep an eye open for deteriorating patterns of behavior.
When we observe early-warning signs, we should take swift action to correct an undesirable course before the unfortunate patterns of dealing with each other fully
Despite the fact that I understand and can analyze some of my decision biases, I still experience them. They never completely cease to influence me. This is something to keep in mind as you attempt to become a better decision maker.
We need to doubt our intuitions.
If we keep following our gut and common wisdom or doing what is easiest or most habitual just because “well, things have always been done that way,” we will continue to make mistakes - resulting in a lot of time, effort, heartbreak, and money going down the same old (often wrong) rabbit holes.
But if we learn to question ourselves and test our beliefs, we might actually discover when and how we are wrong and improve the ways we love, live, work, innovate, manage, and govern.
The importance of experiments as one of the best ways to learn what really works and what does not.
I’m surprised that the importance of experiments isn’t recognized more broadly, especially when it comes to important decisions in business or public policy. Frankly, I am often amazed by the audacity of the assumptions that businesspeople and politicians make, coupled with their seemingly unlimited conviction that their intuition is correct.
Recognize the upside of irrationality
that some of the ways in which we are irrational are also what makes us wonderfully human
our ability to find meaning in work
our ability to fall in love with our creations and ideas
our willingness to trust others
our ability to adapt to new circumstances
our ability to care about others
and so on
Looking at irrationality from this perspective suggests that rather than strive for perfect rationality, we need to appreciate those imperfections that benefit us, recognize the ones we would like to overcome, and design the world around us in a way that takes advantage of our incredible abilities while overcoming some of our limitations.
One of the best ways to discover our mistakes and the different ways to overcome them is by running experiments, gathering and scrutinizing data, comparing the effect of the experimental and control conditions,