What does being “Predictably Irrational” mean?

Predictably Irrational explains the 10 ways in which humans are irrational in general. Economists start with the basic principle “take a rational human being” where “rationality” is the assumption that when presented with options, humans will choose the option that best serves them and their needs and goals. It turns out that we often stuff up this and make the wrong choices. We often do things that are against our best interests. Dan found that not only are we IRRATIONAL (pick the wrong things that don’t give us maximum benefit), we’re also PREDICTABLY irrational (we make the same mistakes for the same reasons all the time).

The Upside of Irrationality looks at how these irrationalities impact us at home and at work. 

Motivation #1 – Pay

Two psychologists, Robert Yerkes and John Dodson conducted a series of tests on rats by putting them in a maze box. There were different coloured zones in the maze, and stepping on a specific colour would send an electric shock pulse through the rats’ bodies. The maze changed each day. The rats needed to learn the maze and identified which areas were safe for them. Their reward for learning the maze was not getting shocked. 

Yerkes and Dodson did these tests to find out two things: 

• How fast the rats could learn
• What intensity of electric shock would motivate the rats to learn the fastest

You would assume that the more intense the shock, the quicker those rats would learn to avoid the shocks. But, they found that when the shocks were very intense, performance dropped! When shocks were low, the rats mosied along casually through the course as it wasn’t a big deal to have little shocks. But when it got too high, performance DROPPED and they took much longer to learn the course, getting big shocks every stop of the way. Without getting into a rat’s brain, the guess is that the rats couldn’t think of anything else other than the shocks. Their focus narrowed, and the pain sapped their ability to learn. Paralysed by the terror of being shocked, the rats had trouble remembering which parts were safe and which weren’t.

Application

We always assume that there is a link between performance and incentives, and we assume it’s something of a linear link or a diminishing returns curve at the minimum.

If we pay our stockbroker higher brokerage fees for their advice, they’ll pick better stocks. if we give CEOs bigger bonuses, they’ll drive the company to be more profitable. We assume that the best way to motivate someone to put in a higher level of performance is to offer them a bigger financial incentive. But it turns out that our assumptions about lab rats and electric shocks were wrong. And the same applies to our assumptions about ‘bonuses’ in the workplace. 

Thinking VS Doing

It seems strange to think that giving people a huge incentive would HURT their performance in ALL scenarios. So Ariely and his mates did a bunch more studies until they came up with their conclusion. It all comes down to how much COGNITIVE SKILL is required in the task. It turns out that in cognitively demanding tasks, higher bonuses tend to backfire.

Things that require creativity, ideas, and mental strain seem to be impeded by big bonuses. The added pressure of the looming incentive hurts your cognitive abilities. This makes sense—the quality of an idea isn’t correlated with how much you’re going to get out of it. Perhaps a medium incentive makes you think a little bit harder, but when the incentive gets too big it can distract you from the task at hand, and you put too much pressure on yourself so you don’t think as effectively. 

Using money to motivate people can be a double-edged sword. For tasks that require cognitive ability, low to moderate performance-based incentives can help. But when the incentive level is very high, it can command too much attention and thereby distract the person’s mind with thoughts about the reward. This can create stress and ultimately reduce the level of performance. 

Motivation #2 – Meaning

There was a second study, which was a very different approach to a very similar experiment (seeing how much people will work under different conditions of value and meaning). The researchers set up a sheet of paper with a random order of letters on the page. The participant had to search the sheet and circle any instances where the letter S was followed by another S. They were told that the sheet of paper had 10 double Ss on it. Once they’d found all 10, they would hand in their sheet and get another sheet with another lot of 10 double Ss to find. They would get 55c for the first sheet, 50c for the next sheet, and so on. From sheet 12 onwards, having decreased by 5c each time would be worth nothing. 

The first group was “acknowledged”. Once they finished a page, the participant wrote their name on the top of the sheet and they handed it to the experimenter. They looked it over from top to bottom, nodded and smiled, then placed it on the top of a big pile of similar papers. 

The second group was “ignored”. The task was identical, but they didn’t write their names on the sheet. when they handed it to the experimenter, they didn’t even take a glance at it nor show any signs of approval. They just put the sheet on the big stack of the other papers. 

The third group was ominously called the “shredded”. When they finished circling their 10 double Ss and handed over their sheet to the experimenter, it went straight into a paper shredder. The experimenter didn’t look at or review the work at all, they just shredded it in front of the participant’s eyes. 

Kicker

On an intuitive level, most of us understand the deep interconnection between IDENTITY and LABOR. Children think of their potential future occupations in terms of what they will be, not about the amount of money they will earn. 

Even as adults, when you meet someone for the first time, one of the first questions you’ll get is: “What do you do?”. This all suggests that jobs are an integral part of our identity, not merely a way to make money in order to keep a roof over our heads and food in our mouths. People find pride and meaning in their jobs. 

Work is assumed to be annoying, and all a person wants to do is to get to the food with as little effort as possible and to rest on a full belly for the most time possible. But what if work ALSO gives us a sense of meaning? What does this tell us about why people want to work? And what about the connections among motivation, personal meaning, and productivity?

Results

As you’d expect from the research, the “acknowledged” group did the best. 49% of participants made it all the way to sheet 10 or beyond. And as you’d expect, the “shredded” group was the worst. Only 17% of participants made it this far. 

It appeared that a boring and menial and pointless job such as looking through random letters on a page looking for double Ss can be made either interesting (if your effort is acknowledged) or painful (if your work is literally ripped to shreds). 

This experiment teaches us that sucking the meaning out of work is surprisingly easy. And it’s also surprisingly easy to get a far greater output – show a little bit of acknowledgement and praise and people can keep doing a boring and lame task for a lot longer. 

The clever people in the shredded group would have realised that they would cheat! No one was checking their work, and there was no proof that could be reviewed later—their work was literally destroyed. In a rational sense, this would be the quickest and easiest way to make the most money. But interestingly, they STILL stopped earlier than the people who took it seriously, the acknowledged group that knew their work was going to be reviewed. 

Turns out that when it comes to labour, human motivation is complex and bizarre. We can’t simply boil it down to a “money for time” equation—the trade-offs go far beyond these surface-level benefits and costs. 

Motivation #3 – Ownership

I’ve gotten into cooking since lockdowns started in 2020. I would make a pumpkin ravioli with burnt butter and sage sauce from scratch. Admittedly, the paste was a little too thick, probably undercooked, and even a little floury. But even though I probably could’ve gotten pasta from a packet for a few bucks and boiled it in water in 1/20th of the time it took to make it from scratch. I enjoyed that meal so much more than any pasta dish I’ve had in the past. 

Ashto 

Pride of creation runs deep in human beings. When we cook a meal from scratch, or we make a painting, or we put a piece of IKEA furniture together—we smile and say to ourselves “I’m so proud of what I just made”. There’s a sense of ownership and pride that comes when you put more effort into a meal. Regardless of its ACTUALLY better or not, you will THINK its better

Of course, these theories extend well beyond the four walls of the kitchen. IKEA has become one of the most recognisable companies in the world with their “semi-prepared” furniture. You’re not buying a pre-assembled table, but you’re also not chopping down a tree and shaving down the planks of wood to build it from scratch. IKEA has seemed to master the amount of effort you need to invest into creating a product. You get the bit and pieces you need, but you still need to do the work to put it together. In the end, you step back and admire your creation. Even if the item is a little crooked, it was still YOUR creation so you engage in some self-delusion to trick yourself into thinking that it has more character if it’s a little wonky anyway.  

Psychologists have even termed this cognitive bias “the IKEA effect”. Having faith and confidence in your ideas and creations is a positive thing. Having TOO MUCH confidence in your own ideas and not being open to hearing other people’s opinions can be negative. our task as students of human nature is to work out how we can get more of the good and less of the bad. 

How being predictably irrational improve our lives

By now, hopefully, it’s clear that if we were to place humans on a spectrum from the hyper-rational Mr Spock to the fallible Homer Simpson, we’re much closer to the Homer end than we like to admit. Just as we know our limitations when it comes to driving, so we created seat belts, ABS brakes, and lane departure warnings. We might need to recognise our cognitive limitations and create safety nets to catch us when we’re being irrational—particularly when making big, important decisions as individuals or as leaders. But at the same time, if you harness it in the right way, there can be “upside” to our irrationalities. Some of the things that make us irrational also make us “human”. If we were completely rational, we’d be very robotic; we might be able to produce a large volume of work, but we might not be able to inject the same amount of effort and energy and emotion and passion into what we do.