Professional Documents
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The Upside of
Irrationality
The Unexpected Benefits of Defying
Logic at Work and at Home
Dan Ariely
Introduction
In The Upside of Irrationality, Dan Ariely draws on opment and human evolution, those same behaviors,
his background in behavioral economics to exam- instincts, and abilities that were helpful in the past
ine irrational human behavior and how it affects now often hinder people. Behavioral economists
decision making in the workplace and in human rela- also hope to influence the way inventors, companies,
tionships. The goal of behavioral economics is to make and policy makers design and regulate working and
sense of the way humans operate, so that people living environments in ways that are naturally more
can observe their biases, be more in tune with what compatible with the way humans act and with what
influences them, and make better decisions. Behav- they can and cannot do. Understanding what drives
ioral economists study human frailty in order to find human behavior and how people can be led astray
more compassionate, realistic, and effective ways for helps individuals gain control over their money, rela-
people to avoid temptation, exert more self-control, tionships, resources, safety, and health.
and ultimately reach their long-term goals. They do Part I. The Unexpected Ways We Defy
not assume humans are perfectly sensible, calculat-
Logic at Work
ing machines—often their observations reveal that
Paying More for Less
human beings are irrational. Over the centuries,
humans developed behaviors that at one time made In the wake of the 2008 financial crisis, many people
perfect sense for their survival. However, with the expressed outrage that banking CEOs and investment
mismatch between the speed of technological devel- executives continued to receive very large perfor-
Business Book Summaries® April 24, 2012 • Copyright © 2012 EBSCO Publishing Inc. • All Rights Reserved
The Upside of Irrationality Dan Ariely
The negative effect of offering high incentives is not • Decisions humans make in the heat of
a phenomenon that many people naturally intuit, yet an emotional moment can also influence
when Ariely and his fellow researchers offer their find- related choices and decisions in other areas
ings to high-ranking executives, they discover how of their lives long after the original decisions
little these business people know about the efficacy of were made.
their compensation plans and how little concern there
• People are influenced by their irrational
is among the executives to improve these plans. The
tendencies more than they realize, not fully
executives argue that those people being offered very
understanding what drives their behaviors.
high levels of incentives are the kind of workers who
perform best under stressful conditions and, there- • By examining and testing assumptions,
fore, the results of the research do not apply to them. people can discover when and how they
are wrong and improve the ways they love,
A person’s performance can be affected by various
live, work, innovate, manage, and govern.
types of stress, such as being fearful of speaking in
public or being worried about how others perceive g g g g
one’s abilities in a social or work situation. As they Information about the author and subject:
try harder to overcome fear or receive peer recogni- http://danariely.com/
tion, people might actually behave less rationally and
Information about this book and other business titles:
be less productive. If this is the case, human resources
http://www.harpercollins.com/
departments might need to reconsider how to pay
employees, finding ways to include the motivating Related summaries in the BBS Library:
element of performance-based incentive pay while How We Decide
eliminating the non-productive consequences of the By Jonah Lehrer
stress caused by over-motivation due to very high
Buyology
incentive offerings.
Truth and Lies About Why We Buy
The Meaning of Labor By Martin Lindstrom
de-motivated if they do not perceive the meaning and appreciative feedback, employees lose motivation to
accomplishment in their daily work efforts. Economic complete their work.
theorists believe that people will
always apply as minimal an effort [U]sing money to motivate people can be a double-edged
as possible to maximize their
sword. For tasks that require cognitive ability, low to moderate
reward. However, behavioral
economists seek the connections performance-based incentives can help. But when the incentive
among motivation, personal is very high, it can command too much attention and thereby
meaning, and productivity. They distract the person’s mind with thoughts about the reward.
have conducted experiments that
show people are motivated more when they see their
When it comes to labor, human motivation is complex
labors resulting in meaningful accomplishments.
and cannot be reduced to a simplistic “work-for-
People will expend additional energy to complete
money” trade-off. Even before the innovations in
tasks when they know the outcome provides a satis-
Henry Ford’s factories, managers had been dividing
factory meaning of accomplishment.
tasks down into very small, discrete parts to build
It is easy to suck the meaning out of someone’s work. more efficiency into manufacturing processes. How-
A person could work diligently to produce a deliv- ever, that division of labor can exact a human cost if
erable for a project, only to discover that the project the worker cannot relate his task to the big picture
was cancelled and his deliverable had been discarded. and overall goals of production. The alienated worker
Companies that do this frequently, showing that the does not get a sense of purpose or completion from
workers’ labors are essentially meaningless, will his efforts and cannot find identity or meaning in his
find their workers are no longer motivated to com- work. Experiments show that the effect of meaning
plete projects. People are also motivated if they know on labor and the effect of eliminating meaning from
others appreciate the efforts they have put into an end- labor are very powerful motivators—more powerful
product. Knowing that someone else will appreciate than usually expected. In the absence of meaning,
their work can give their efforts the level of mean- workers have little desire to put their heart and soul
ing necessary to motivate them to produce. Without into their labor.
The IKEA Effect
About the Author Pride of creation and ownership runs deep in the
human psyche. People who would not look twice at a
Dan Ariely is the James B. Duke Professor of cheaply constructed piece of furniture will be proud of
Psychology and Behavioral Economics at Duke their efforts when purchasing and assembling a simi-
University, with appointments at the Fuqua lar piece from IKEA on their own. When instant cake
School of Business, the Center for Cognitive mixes were first introduced in the late 1940s, house-
Neuroscience, the Department of Econom- wives were not enthusiastic about them, despite the
ics, and the School of Medicine. Ariely earned fact that the mixes saved them time and effort. Cake
one Ph.D. in cognitive psychology and another mixes simplified the process of making a cake to the
Ph.D. in business administration. His work has point that the women no longer felt ownership and
been featured in the New York Times, the Wall pride of creation. The producers of the mixes changed
Street Journal, the Washington Post, the Boston their products, so the women had to add a fresh egg
Globe, Business 2.0, Scientific American, and Sci- and a few other ingredients. Sales took off. This com-
ence. He has appeared on CNN and CNBC and bination of providing a benefit while allowing the
is a regular commentator on American Public user of the product to retain a sense of ownership and
Media’s Marketplace. pride of creation later became known as the egg theory.
The fact that people are attached to things they make
Business Book Summaries® April 24, 2012 • Copyright © 2012 EBSCO Publishing Inc. • All Rights Reserved Page 3
The Upside of Irrationality Dan Ariely
is not a new concept. Often, people will place a higher ucts can inspire others to be more committed to and
value on the outcome of their own creative efforts than interested in the tasks at hand. Allowing others to
of the efforts of others. More and more companies are believe they have come up with an idea can imbue
letting customers customize their products. However, in them a stronger sense of ownership in the concept.
there is a delicate trade-off between effortlessness and On the negative side, this knowledge can be used
investment. If the companies ask for too much effort to manipulate others into doing tasks they typically
from their customers, then they drive them away. would not attempt. Also, falling in love with one’s
On the other hand, offering too little opportunity for own ideas can lead to a fixation and addiction to a
customization and personalization does not let the concept, making a person blind to the value in other
customer become attached to the end-result. ideas that might be better.
The Case for Revenge
As companies start to understand the true benefits of custom-
ization, they might start generating products that allow cus- Trust and revenge are two sides of
the same coin. Revenge is a deep-
tomers to express themselves and ultimately give them higher seated human instinct. Researchers
value and enjoyment. discovered that during trust-ori-
ented experiments, many of the
People become attached to things that they have
subjects who had the opportunity to exact revenge on
invested effort in creating and, consequently, they
untrusting partners did so, and they punished them
overvalue these objects. Not only do people overvalue
severely. Experimenters observed that while test sub-
their own creations, but they are largely unaware of
jects were making their decisions to seek revenge,
their tendency to do so and think that others value
activity increased in areas of their brains that are usu-
their efforts as much as they do. The more effort that
ally associated with seeking rewards. This suggested
people put into creating something, the greater they
that punishing betrayal, even at a cost, has biologi-
value and appreciate the effort, but only if the effort
cal underpinnings and that this behavior is similar to
results in a completed task. Conversely, when people
pleasure.
work at a task but cannot complete it, they feel less
attached to the work and the product. Humans are designed to maintain a high level of trust
in human society. Because trust and revenge are so
The Not-Invented-Here Bias
related, people get very upset when a social contract,
Not only do people highly value the output of their founded on trust, is violated. Under these circum-
own labor, but they place a high value on ideas that stances, they are willing to go to great lengths and
they come up with on their own, placing less value costs to punish the offenders. This tendency was well
on ideas of others. When people feel that they have demonstrated during the 2008 financial meltdown.
created something, they feel an increased sense of People had entrusted banks with their investments,
ownership and begin to overvalue the usefulness and life savings, and mortgages and felt betrayed and
importance of their ideas. This tendency for people to angry when the banks failed. Not surprisingly, these
be biased against ideas or products that they them- people expressed a strong desire for revenge and
selves have not devised is called the not-invented-here were outraged at bailout plans.
bias. This bias can have negative consequences for
Even small transgressions can trigger the instinct for
individuals and companies if people value the cul-
revenge. Bad customer service or inadequate support
tures they create around their own beliefs, language,
makes customers mad, and they often seek retalia-
processes, or products.
tion on the agent serving them at the moment. Acts of
These tendencies can lead to both useful and detri- revenge are not easy to observe from the CEO’s office,
mental consequences. On the positive side, someone and many companies do not have a sense about the
that understands the sense of ownership and pride cause-and-effect relationship between their offending
that comes from generating ideas and creating prod- behavior and the retaliatory urges of their angry cus-
Business Book Summaries® April 24, 2012 • Copyright © 2012 EBSCO Publishing Inc. • All Rights Reserved Page 4
The Upside of Irrationality Dan Ariely
Business Book Summaries® April 24, 2012 • Copyright © 2012 EBSCO Publishing Inc. • All Rights Reserved Page 5
The Upside of Irrationality Dan Ariely
People tend to take the safe and predictable paths in The market for single, young people to find partners
their work and personal lives to do things that pro- used to be centralized in a village where parents or
vide steady and reliable progress, but real progress elders helped pair up young people. Nowadays, how-
and real pleasure come from taking risks and trying ever, it is no longer organized in one location; young
different things. Each person must explore their indi- professionals relocate for education or work pur-
vidual patterns of adaptation to learn what influences poses and have to break off their direct and indirect
them and what does not. relationships, further hurting their chances of find-
ing someone. The onset of online
[C]ould it be that, in their desire to make the system compat- dating sites has started to meet the
ible with what computers can do well, online dating sites force needs of this no-longer-successful
our often nebulous conception of an ideal partner to conform market. However, most online
dating programs treat participants
to a set of simple parameters—and in the process make the
as searchable goods, as though
whole system less useful? they can be fully described by a
few attributes. In reality, people
Hot or Not?
cannot be characterized as easily and effectively as
People tend to associate with, date, and marry people these dating Web sites imply. The sites do not seem
like themselves. Social scientists have studied this to take into account the nuances of attraction and
birds-of-a-feather phenomenon for a long time and romance.
call it assortative mating. Qualities such as physical
Researchers found that participants of online dating
looks, wealth, power, and even a sense of humor can
sites were not very satisfied with the experience,
make a person more or less desirable. However, in
saying that the process was difficult, time-consum-
American society, beauty, more than other character-
ing, unintuitive, and only slightly informative. They
istics, defines one’s place in the social hierarchy and
suspected that the dissatisfaction stemmed from
one’s mating potential. Those who are not at the top of
the fact that only easily measurable characteristics
the beauty charts find ways to adapt, either by alter-
could be searched, such as height or education level.
ing their perception of what is aesthetically pleasing
In their experiments, they found that online dating
or reconsidering which attributes are more important
participants are more interested in learning about
and attractive to them. Of course, there are individu-
experiential attributes of potential partners, such as
als who never adapt and are continually disappointed
a passion for Golden Retrievers or a love of Monty
in their relationships.
Python skits. The results of the experiments showed
Researchers have shown that most people use the that the online market for single people should be
same standard to decide who they would consider structured to allow people to evaluate each other
beautiful or handsome. Additionally, most people with those characteristics that are more nuanced
are aware of their own level of attractiveness. In gen- and meaningful, not just eye color or favorite food.
eral, women pay less attention to a potential partner’s Creators of online dating sites, health insurance poli-
physical appearances than men do. Overall, humans’ cies, and retirement plans somehow forget about
adaptive talents give them the ability to change their people’s built-in limitations, thinking that people are
perspective, look past the physical, and discover and hyper-rational, know their own minds perfectly, can
love the characteristics of their partners. properly compare all options, and always choose the
When a Market Fails best course of action. In reality, people are sometimes
fallible, myopic, vindictive, and emotional. By under-
In broad terms, markets are coordinated systems that standing human limitations, companies can start
help people save time while they strive to achieve their improving information-based products and services.
goals. They are typically centralized and organized.
Markets are an integral part of life, are important to On Empathy and Emotion
the economy, and sometimes fail. Social scientists have sought to discover why humans
Business Book Summaries® April 24, 2012 • Copyright © 2012 EBSCO Publishing Inc. • All Rights Reserved Page 6
The Upside of Irrationality Dan Ariely
will respond to the plight of one suffering individual Not Acting on Negative Feelings
more so than to a tragedy affecting large numbers
Human emotions are fleeting. People might get
of victims. People are more willing to spend money,
annoyed in a traffic jam, or be pleased by a gift, but
time, and effort to help suffering people that they can
their feelings will not last long. However, in some
identify with, yet they fail to act when confronted
cases, if they react impulsively in response to how
with statistical numbers about victims. Several factors
they feel, they might regret their behavior for a long
are involved with this phenomenon:
time. Sometimes people make decisions in the heat of
• The feeling of closeness or kinship one has with an emotional moment, and those decisions influence
the victim. their behavior long after the emotion has subsided.
Rarely can people remember exactly the emotional
• How vividly one experiences someone else’s suf-
state under which they made decisions; however,
fering.
they remember the actions they took. When people
• How much faith one has that efforts to help vic- act on their emotions, they make short-term decisions
tims will have a real impact. that have an effect on their long-term decisions. Even
Humans are emotional beings, and these factors residual emotional responses based on events in their
explain why they will respond to pleas to help a past can influence people’s decisions.
home-town girl needing an
operation but ignore calls to help
Many forces contribute to a general apathy toward large trag-
thousands of dying people in edies. They include…the fact that pain on the other side of
Africa. Researchers have found the world doesn’t register as readily as, say, our neighbors’.
that when people are encouraged Another big factor, it seems, has to do with the sheer size of the
to become less emotional and
more calculating about a tragic
tragedy—a concept expressed by none other than Joseph Stalin
situation, they do not increase when he said, “One man’s death is a tragedy, but a million
their concern for larger problems deaths is a statistic.”
but suppress their compassion in
general. By their nature, huge problems do not evoke Sometimes, people remember the actions they have
emotions or motivate people to act. With all the psy- taken in the past under certain circumstances and
chological forces working against a person’s tendency mindlessly repeat them. More often, people look to
to act, it is no surprise that problems continue to grow their past actions as a guide for what they should do
and few people are moved to solve them. next, following the same basic behavior pattern. This
If people are called to action only by individual, per- tendency suggests that the decisions humans make
sonalized suffering and are numbed when a problem on the basis of a momentary emotion can also influ-
is too huge to imagine, how can human society solve ence related choices and decisions in other areas of
large-scale humanitarian problems? One response their lives long after the original decision was made. If
might be to quickly produce emotion-evoking photo- an individual does nothing while feeling an emotion,
graphs and stories when a disaster happens in order there are no short-term or long-term consequences.
to propel people into action. When a crisis occurs, to This is why common wisdom admonishes people to
activate their emotions and help decide how to take “sleep on it” or “count to ten” before making deci-
action, people can try to imagine how specific indi- sions. However, if a person reacts to the emotion by
viduals might be suffering. Knowing the psychology making a decision, she may not only regret the imme-
behind how people respond to suffering and crisis, diate results but also continue to be misguided in
governments can make more reasonable decisions future behaviors.
and offer assistance to victims even when there is not Lessons from Irrationalities
an emotional response from their constituents.
Humans are susceptible to a formidable array of deci-
Business Book Summaries® April 24, 2012 • Copyright © 2012 EBSCO Publishing Inc. • All Rights Reserved Page 7
The Upside of Irrationality Dan Ariely
sion biases, making it difficult for them to make really term habit, how people learn to love the ones they are
big, important, life-changing decisions. Irrational- with, and other areas. Ariely uses data from his own
ity plays a large role in people’s lives: in their habits, original experiments to draw conclusions about how
their dating choices, their motivations at work, the and why people behave the way they do. He explains
way they donate money, their attachment to things how to break through negative patterns of thought
and ideas, their ability to adapt, and their desire for and behavior to make better decisions. The book is
revenge. People are influenced by their irrational ten- written in two parts: the first part addresses human
dencies more than they realize, which means they behaviors in the workplace while the second part dis-
do not fully understand what drives their behaviors. cusses behaviors in interpersonal relationships. After
Therefore, people need to doubt their intuitions. If a cover-to-cover reading, readers can later return to
they continue to follow their gut feelings or do things the extensive index to use the book as a reference. A
because they have always been done that way, they bibliography and a list of suggested reading helps
will continue to make mistakes. If people can learn to readers expand their knowledge beyond the scope of
question themselves and test their beliefs, they might the book.
actually discover when and how they are wrong and
improve the ways they love, live, work, innovate,
manage, and govern. This is where controlled experi- Contents
ments can be beneficial to learn what really works Introduction: Lessons from Procrastination and Medical
and what does not. Experiments are recognized as an Side Effects
important tool in science, but not broadly recognized Part I. The Unexpected Ways We Defy Logic at Work
as a tool for making important decisions in business
or public policy. Too often business people and poli- Chapter 1: Paying More for Less: Why Big Bonuses
ticians work off of their assumptions and intuitions Don’t Always Work
without testing them. Chapter 2: The Meaning of Labor: What Legos Can
The upside of irrationality is that some of the ways Teach Us about the Joy of Work
that people are irrational are also what makes them Chapter 3: The IKEA Effect: Why We Overvalue What
wonderfully human. With this perspective, instead We Make
of striving for perfect rationality, people can appreci-
Chapter 4: The Not-Invented-Here Bias: Why “My”
ate those imperfections that benefit them, recognize
Ideas Are Better than “Yours”
the ones they would like to overcome, and design the
world to take advantage of humans’ incredible abili- Chapter 5: The Case for Revenge: What Makes Us
ties while overcoming some of their limitations when Seek Justice?
it comes to their ability to think and reason.
Part II: The Unexpected Ways We Defy Logic at
g g g g Home
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The Upside of Irrationality Dan Ariely
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The Upside of Irrationality Dan Ariely
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or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission.
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