Improving Employee Productivity With More Informed Management: Dan Ariely’s “The Upside of Irrationality”


Daniel Ariely Upside of Irrationality Image

Dan Ariely has one PhD in cognitive psychology and another in business administration. He’s the James. B. Duke Professor of Psychology and Behavioral Economics at Duke University. He’s also got appointments at the Fuqua School for Business, the Center for Cognitive Neuroscience, the Department of Economics, and the School of Medicine. In short, if you’re interested in improving the performance at your work place, he’s a good guy to listen to.

And that’s why we’re interested in Ariely and other writers like him (such as Daniel Kahneman). We’re a training company, but we’re the first to admit that training isn’t the solution for every issue at the workforce, and that you can get workers to improve their performance in ways other than providing training. Ariely’s insights into how people think and how those thoughts affect their choices and behaviors can be applied directly to workforce performance improvement.

If that sounds intriguing to you, we’ve got a little summary for you below, and then we encourage you to buy the book and check out Dan Ariely’s website. We also have some articles dealing with behavioral economics related to Daniel Kahneman’s book Thinking, Fast and Slow and thoughts on innovation from the folks behind Freakonomics.

The Upside of Irrationality: Channeling Employee’s Irrational Thoughts and Behaviors Work to Positive Ends at Work

Ariely’s 2010 book Predictably Irrational: The Hidden Forces that Shape our Decisions explains that human behavior is often irrational, can be difficult to predict, and can lead to negative consequences.

Ariely’s more recent book, The Upside of Irrationality: The Unexpected Benefits of Defying Logic, begins with the same assumption that human behavior is often irrational, but shows how that irrational behavior, if understood and directed properly, can lead to positive consequences. Business managers can draw lessons from this book to help them manage more effectively, and increase the bottom-line of their companies, by understanding their own irrational behavior and the irrational behavior of their employees and customers.

Ariely’s book rests upon the following observations and arguments:

  • Human behavior is often irrational.
  • In some cases, irrational behavior leads to negative consequences.
  • In other cases, irrational behavior can lead to positive consequences.
  • Managers at work often rely on mistaken “common sense” explanations of human behavior instead of correctly understanding the irrational motivations of their employees and customers, and so the manager’s actions and behaviors do not create their desired effects.
  • With an understanding of the irrational impulses behind human behavior, good managers can more effectively lead their employees and customers to desired, positive results while more effectively avoiding undesired, negative actions and behaviors.

With that foundation in place, Ariely’s book then lists ten irrational behaviors that are common to humans, dedicating a chapter to each. Below is a summary of each, though of course reading Ariely’s book provides much more information.

Ten Irrational Behaviors to Be Aware of In the Workplace

1. Big Bonuses Don’t Work:

In this chapter, Ariely investigates the connections between compensation, motivation, stress, and performance. He shows that providing large performance bonuses, setting difficult-to-attain performance goals, or setting up other performance metrics with high stakes often leads to decreased performance quality. That’s because they create high levels of stress and distract workers from their tasks. Ariely argues for lower-stakes incentives, including small or medium-sized bonuses (perhaps awarded more frequently) or bonuses based on average performance or based on performance over several years instead of on yearly results.

Note: This issue of worker motivation, including external and internal motivating factors, is also addressed in our article on workplace conditions and management strategies that lead to motivated, innovated workers.

2. The Meaning of Labor:

Here, Ariely looks at what motivates people to work. What he finds is that workers who find their working meaningful, even in a small way—not necessarily it changes the world, for example, but even because it is recognized by their bosses—are much more motivated than workers who don’t feel their work is meaningful. And he shows that managers can very easily kill the motivation of their workers by not recognizing their work (on the flip-side, Ariely says “…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”). Ariely also shows how an intense division of labor, and an overly bureaucratic compartmentalization of the workforce, can kill worker motivation by removing the worker’s sense of completion (in terms of a complete product or project) and sense of working on a team.

And since we’re on the topic of worker motivation, you might find this article on How to Build a Motivated Workforce interesting, too.

3. The IKEA Effect:

In this chapter, subtitled “Why We Overvalue What We Make,” Ariely explains that people draw increased satisfaction from products they do some work on. Examples include the table you buy at IKEA and then build on your own, or the classic story of how Americans preferred cake mixes that required them to do a little work by adding milk and eggs over cake mixes that required adding nothing at all.

A lesson here may be that you should design a product that allows your customer to customize it.

A second lesson may be that you might want to let employees work on and “touch” projects, even if they’re not 100% necessary, just so they support the product more.

4. The Not-Invented Here Bias:

In this chapter, we learn that people are hardwired to think their own ideas and creations are better than they really are (this extends the argument made in the previous “IKEA” chapter). In some ways, this can be good. It contributes to the entrepreneurial drive to start and complete a project, and it helps explain why people work so hard on projects at work. On the other hand, Ariely shows that it pays to be wary of drinking too much of your own Kool-Aid. It causes decision makers to be too confident in their own ideas and in the products and services their company provides. It causes most employees to preach the company gospel uncritically and fail to focus on improvement and innovation. And it risks putting employees who make legitimate, sensible counter-arguments at risk of being marginalized, feeling ignored, and losing their motivation.

5. The Case for Revenge:

Ariely presents research that shows humans are hard-wired to seek revenge when they feel they have suffered an injustice. There are several business applications of this. First, beware that you (and all your coworkers and customers) have this deep-seated desire, and find a way to manage or control it effectively. And secondly, know that when you’re dealing with a dissatisfied customer, in most cases a sincere “I’m sorry” will defuse this desire immediately (Ariely also shows evidence that this is true). By contrast, a lack of an apology can create an extremely vengeful customer who is highly motivated to smear your company’s name far and wide—something you probably don’t want.

6. On Adaptation:

People, it turns out, have an amazing ability to adapt to the circumstances they’re in. Something that seems terrible at the beginning really may be terrible at the beginning, but you tend to get used to it quickly and return to your previous level of happiness. And something that seems fantastic at first may really be fantastic at first, but you again will return to your previous level of happiness. In general, we “get used to” things and they don’t affect our normal status quo as much as we think they will at first. The take-away here is to be aware of this process of adaptation and to make it work for us. For example, Ariely shows that it’s best to perform an unpleasant, dreaded task fully to completion instead of taking several breaks, as the adaptation process makes the uninterrupted work easier. He also shows—counter-intuitively—that if you’re doing something you like, it’s best to interrupt it every so often to halt the adaptation process and maximize the total joy you receive. Another potential application is to guard against adapting to, and getting used to, problems in your own products that will turn off potential new customers (remember the focus that lean manufacturing places on value here).

7. Hot or Not?:

This chapter looks at the connections between adaptation, dating, and romantic satisfaction. It’s an interesting chapter, but since it’s not directly related to workplace issues, we’ll leave it for you to read without our guidance :).

In fact, since workplace sex harassment is all over the news these days, we’ll just remind you it might be good to consider some sex harassment training at work.

8. When a Market Fails:

In this chapter, Ariely presents a disagreement with classical economics, which states that over time, markets develop to correctly match supply and demand. Instead, Ariely says that in some cases, a market will fail to offer products that adequately match supply and demand. He offers online dating as an example. Ariely believes it’s because the product—online, computerized dating services—are built and designed to manage things that are easy to store in a database (such as age, income, hair color, height, and weight) but don’t take into consideration the things that truly make successful romantic matches work, such as how well you get along in a real conversation together. A lesson here is to make sure your product truly matches the needs of your customers. If you haven’t thoughtfully considered the needs of your customers and researched the best way to satisfy those needs, your product may not do well in the long-run.

9. On Empathy and Emotion:

Here, Ariely considers (as his subtitle explains) “Why We Respond to One Person Who Needs Help but not To Many.” He shows that people will often give great amounts to one person involved in a tragedy while at the same time completely ignoring a much larger number of people involved in a different tragedy. The takeaways here for business purposes are many, including potential philanthropy. But they all begin with being aware of the built-in biases that influence who we empathize with, as the bias could easily lead to unfair favoritism at work and a corresponding lack of motivation by the overlooked workers (see The Meaning of Labor, above). Another possible takeaway is to take advantage of these biases in your marketing materials, if possible (without being Machiavellian or unethical, of course).

10. The Long-Term Effects of Short-Term Emotions:

We often have strong, short-term emotions. And, for better or worse, we often act on those. That’s disturbing enough, but what’s more, those actions based on the strong feelings of short-term emotions frequently condition our continuing long-term behaviors. That’s true even when they’re not things we intend to do, not things that we do knowingly, and are not things we’d choose to do if we were thinking rationally. So, this chapter provides a few takeaways. First, try to avoid acting on strong emotions for a short-term payback. And second, re-evaluate your current long-term behaviors to make sure your actions toward others and the way you treat them are fair and productive, or if they’re the unintended and unproductive “Pavlovian” consequences of your own earlier, rash, and counterproductive actions.

Conclusions: Prepare for the Irrational At Work–And Benefit by Doing So

What do you think? Do these points ring true to you? Do you have experiences that relate to these arguments? Have you read this book, other books by Ariely, or other books about behavioral economics, such as Kahneman’s Thinking, Fast and Slow or the various Freakonomics books? We’d like to hear your thoughts?

And hey, why not download the free guide to manufacturing training below before you go?


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