From Death to Invisibility
EEric Singler: Hi and welcome to our first episode of b.e. good!, brought to you by the BVA Nudge Unit, specializing in the application of behavioral science for successful behavior change.
Every month we get to speak with a leader in the field of behavioral science, in order to get to know more about them, their work and its application to emerging issues. My name is Eric Singler, founder of the BVA Nudge Unit, and with me is my amazing colleague, Jenic Mantashian.
JJenic Mantashian: Hi Eric. Well, it is amazing to be joining you remotely from the US. It's a special honor to be kicking off the very first episode with you. When you shared with me who we booked as our first guest, I have to say I was very impressed, but then again, you're always full of good surprises. So will you tell our listeners who we're speaking with today?
E Okay, yes, of course. Well I am very honored to be introducing our guest. Today we will be speaking with Dan Ariely. Dan is a world leader in behavioral science, James B. Duke Professor of Psychology and Behavioral Economics at Duke University and author of the NYTimes bestselling books, Predictably Irrational, The Upside of Irrationality, and The Honest Truth About Dishonesty. He has founded numerous companies and think tanks, his TED Talks have been viewed over 15 million times, and in 2018 he was named as one of the Top 50 Most Influential Living Psychologists in the World.
Dan, I met you around 10 years ago at Duke. We talked for half a day, and after the discussion, I was so convinced about the power of behavioral science to contribute to better business and better lives, that I decided to create my BVA Nudge Unit, and also to write books to promote it in my country in France and everywhere I can. So we met several times since this moment. Last time was in London, I think, but I am more than happy and honored to have the opportunity of a new in-depth conversation 10 years later. Welcome Dan.
DDan Ariely: Lovely to be here. Hi from my office in Durham, North Carolina.
J Great. Thank you, Dan. It's a real pleasure to be speaking with you today. So as a practitioner in this space, I get a lot of questions around how I started my career. I know you have an unconventional story about how you got started.
D Yeah. So, as you know, I had a very long period in the hospital and the thing that I came out of the hospital with, was not just, you know, pain and specific knowledge, it was also the sense of - there were lots of things that were done in a way I didn't want them, to be done. You know, as I learned more, I realized how much hospitals are built for the doctors and not the patients.
But at that moment, I didn't think about it, in that general way. I just thought about all the things I didn't like as a patient and not just like, well, all the things that created me extra agony and pain and so on, and I wanted to fix it. And in fact, I think I'm not a good social scientist from this perspective, you know?
So I think that there are the scientists who are fascinated by a problem for its own sake. Like somebody is just interested in time discounting. They just want to understand everything in time discounting for its own sake, and that's very beautiful, and I admired that.
I am much more of an engineer, I think at hearts. I look at things that I don't like and I'm using social science as a tool to change it. So, you know, in the hospital there was the question of bandage removal. There were questions on placebos, there were questions of a patient's control. There were all kinds of things that I didn't like and I'm on this long journey to try and see what they can fix. I'll tell you something that is kind of a bit morbid and difficult, but not something I've shared before.
You know, I have very strong memories of surgeries that go awry. Like I have this very vivid memory of the monitor, [mimics a beeping sound] and, and the anesthesiologist says Dan, can you hear me? And I want to say yes, but I can't move. And he said, Dan, can you hear me?[Mimics beeping sound] going faster and faster. And then eventually I hear a 'beeeep' and I think to myself, this is it. I, it's over, and then of course things blank. And, and I wake up, who knows how many hours later and I'm alive. And I never managed to understand what, what happened. They didn't tell me.
But anyway, I really detest hospitals and I really don't want to die in the hospital. Like, you know, I think that's the way, like from the patient - perspective of the patient it's painful, it's confusing. You don't understand the sounds you don't understand where things are coming from. So I'm perfectly fine.
So, one of the projects I started exploring, and you know, it's taken me a long time was, was the question of how, 'how should we end our lives?'
I had a public discussion once. I didn't know what the topic would be, I just arrived somewhere and there was a guy who had a Nobel prize in biology. And in the question they gave us was 'can we beat death?'
And you know, the biologist talked about it from the biology perspective, and I said, yes, I think we can beat death, but if we commit suicide, like beating death, it means dying on our own terms and not letting the world dictate it.
So, you know, this research on peak and end, right? The research on the peak and end says that we remember things based on the trajectory, based on the highest moment and the last part of the experience. And this is why we end meals with the desserts, or you know, we really worry about the end part of the experience, at the end of life, we do it in the worst possible way. It's the part you would not design this way. You would not design it to end up in a miserable place where people are being, you know, somebody's trying to resuscitate you, breaking your ribs, puncturing your lungs, and you're in agony and dying slowly.
So I do want to figure out how to do it, how to do it better. And it's not easy, right? There is, as social scientists, the things that are easy for us to do, small nudges. Let's change the print here and print there; and those are great things. You can deal with the end of life in that way.
So, I'm examining all kinds of things about how we end our life. And I want to figure out what's the right way. And how do we, and if you think about this question, it's about how do we get people to feel that they've accomplished something, that we feel loved? How do you think about the person who is going to pass away but also about their relatives who are staying?
And so, you know, what would you want in your hospital bed or in your home to remind you of the things that you've accomplished? How do you want acceptance? How, what is what gives - get us to acceptance?
So anyway, I don't have a good answer for this, but, but this is an example of something that troubles me, life in the hospital. Something that I personally don't want to experience the end of life in this way and I'm spending time trying to figure out how, how would I approach that? And I don't have a good answer yet. It will, it will take some time. But how would I approach something like this and what would I design in a different way?
J Well, that's quite a mission I have to say. I can only imagine the nature of the research that would go into that type of exploration. So Dan, are there specific researchers or mentors that really influenced you in terms of your career? For example, you referenced the peak and end rule.
D Yeah, a lot. So, so the person that I maybe admire the most from a research perspective is George Loewenstein. And the reason I think is that George has this tremendous capacity to observe things, right?
And the first thing that social scientists, I think do is it's about observational skills. It's very hard to observe with fresh eyes the things that we see every day, but George has, I think an uncanny capacity to sit and look at the same things that we all see all the time, and just, just look at it from a slightly different perspective.
So that's one of my academic heroes and another one is Tom Walston. Tom Walston was my PhD advisor in the psychology department and I loved him because of the depth with which he was going into everything.
And, you know, I personally don't go always to the depth that I think would make him proud. Sometimes I care more about just solving the problem than to understand it in a deep way, but, but Tom had this amazing ability to dig deeper and deeper and get another layer and another layer and just being exposed to it, even though I don't do it all the time has been, has been tremendous.
And then one other, actually I've mentioned to other people, in the next bucket, I will mention, John Lynch and Al Roth. And for me, those two are people that I admire from a more holistic perspective.
So it's, they are of course, great researchers and are very clear thinkers and you know, they both have tremendous contribution. Al, of course, you know, got the Nobel prize, for some of his work, but in addition to them being, such good researchers, I think they both understand life in a better way.
And I don't like the term work-life-balance, cause it, it's just as a contradiction, but they both understand work-life harmony. And, I've made a ton of mistakes in that work-life harmony, but I look at the two of them as really amazing people who are doing amazing work, getting their colleagues to do amazing work, having just an overall positive impact, on the field.
Both of them, for example, never say no to young faculty or PhD students to give them help or advice. So, so there's something about the way that they live a holistic academic life that I envy and aim to get to one day.
J That's great. I think it's a perfect goal for all of us. And actually some of your comments lead to my next question. What practical advice would you give to people trying to get into the field of behavioral economics?
D So, you know, so behavioral economics has a lot of flavors. And first of all, in academia, it has multiple flavors. There are people who are more theoretical that want to create an economic model with some behavioral parameter, right? Here's prospect theory plus a parameter or here's something else plus a parameter. And there are people who approach it from psychology and the people who approach it from law. And then there are people who approach it from a more practical perspective.
There are more and more people in public policy, in public health. I guess law school would be there as well. So there are people who are trying to do it academically, but academically in a practical way. And then there are people who are really trying to do practical work such as yourself.
And when, when people ask me, I try to understand what they want. Do they want the academic path or the practitioner path? And it's not that one is better than the other. They're just different. And, what I try to tell them is, sometimes people read a book or a couple of papers and say 'I want to do that', and I say, look, a book is a book and it describes some of the things that go into doing research, but it doesn't describe everything. So before you go and dedicate your life to it, go and volunteer in the lab for six months and see if you like collecting the data.
There's a difference between enjoying learning about something, doing research; doing research is different. Learning about something is different, and applying is different.
So, first of all, try to figure out which one you want to do and then try to figure out the academic path versus the practitioner path. And, and if you decide to go on the academic path, they are of different flavors and you have to figure out the flavor. And one way to do it is to read papers and ask yourself which paper would I like to have written?
Basically try to understand what, what your voice, and then try to study with that person that wrote your papers. And then if you want to be a practitioner, practitioners also have different flavors. Policy, health, and you know, behavioral economics for me is kind of an applied discipline and it's a discipline of the little details. Largely, it's a discipline of little details and you can't do it without understanding the little detail.
So before you go and help a particular company, for example, you study the company, you understand the process, you look at it and you look at a lot of little details of what you're doing, and only then you can suggest changes.
The same thing, if you want to do behavioral science that works on health, you have to understand health. You can't just study economics, psychology, research methods and statistics and go to health. You should study something like this.
So if you're trying to be a practitioner, then I recommend to people to also get the domain specific information that they think they'll go for.
J Thank you. That was helpful. I really liked your idea about reading the paper and then backing into it that way. And one kind of curious question I had, if you weren't a behavioral scientist, what would you be doing right now?
D So, when I look at the development of- I love science. I think science is kind of a wonderful way to have a curiosity and try to make a difference. And I think right now, there's tremendous advances in molecular biology.
I think I would have gone in that direction. And I used to think that my main interest is behavioral change, and that if I wasn't a social scientist, I would have become like a politician or something like that, but I learned that it's not, it's not true. I don't have the thick skin needed to be a politician. So, but I think my two areas are let's try to make some change for good and which area we choose it is, is less important. So I think science is kind of my tool and if I wasn't in social science, I think molecular biology.
J Great. Thank you.
E Okay Dan. Coming to your work, which experiments have you conducted that you feel was the most insightful, or perhaps, ones that you are most proud of?
D So, you know, there's always a recency bias that experiments we've done more recently are of course seem more insightful, but for me, there's an experiment that got me to discover things that I didn't know and got me to think very differently. And that's the experiment we did in Kenya.
We tried to incentivize savings, and I'll give you the quick version.
The quick version is we approach very, very low income people in Kenya. People who live on about $10 a day, they have about two days of work a week. Every day they did work, they make about $5. So they have low income and fluctuating income, and we're trying to save, to get them to save a bit of money for a rainy day because if they don't have any money saved for a rainy day, when bad stuff happen, their life just deteriorates. They have to borrow at a very high interest rate or sell some tools or utensils or something.
And we try different things. We created a saving plan and we try different things. We try to send them reminders. We tried reminders from the kids, we try to give them a 10% bonus match, a 20% match. We try to give them match without loss aversion and with loss aversion, and all of these were great and everything worked, but we also try to give them a coin.
And the coin had 24 numbers on it. It was a coin that we made in China. It cost us 20 cents, most of it was shipping, and it had 24 numbers written on the coin, on the edges of it to indicate 24 weeks of the program.
And we said, please put that coin somewhere in your home. And every week, mark the number for that week, week one, two, three, four, and scratch it with the knife if you saved, horizontally and scratch it vertically, if you didn't save.
So we had texts from kids, reminders, financial incentives, loss aversion in the coin. And the coin was by far the biggest winner, compared to the other approaches. It basically doubled savings.
So first of all, that was surprising to me. Now, I thought it would be effective, but I didn't think it would be that effective.
So every time we have a result that is surprising, you learn more than if it's not surprising.
But, the reason I did the coin was that when I was in Soweto; Soweto is in South Africa. When I was in Soweto, I was sitting, actually Jenic, you will like this.
So, so, you know, if you think about, you know, how can we study poverty, right? It's like when, when I started, when I started buying coffee, I know how to buy coffee. I don't need to go and do kind of the anthropological work. But when you go to a place you really don't know, it's good to go and spend some time not to come with an arrogance of the somebody who knows.
So anyway, so I spend a lot of time in Soweto and I spent a day sitting in a place that sells funeral insurance. And as you know, funerals in South Africa are very, very expensive. People spend between one to two years of income on funerals and of course people don't have that reserved, so they have funeral insurance.
By the way, their weddings are very modest. They spend, the funeral is the, is the celebration of a lifetime for them.
By the way, of course it's more rational, right? It's more rational to celebrate funerals than weddings, because with funerals, you know, you'll only have one.
[Laughter]
And so I sit in this place that sells funeral insurance and this father comes, and he comes with his son. And as you know, kids in work all the time. So you know the fact that his father took his son from work to bring him with him to buy funeral insurance, it's kind of surprising; and not only that, the father buys funeral insurance, gets the paper certificate and hands it in kind of a ceremony to his son.
And as he does this, I think to myself, what is this father doing? Why the ceremony? And then I started thinking about it, and what I realized is that imagine the poor father who happened to make some money today, got the job, doesn't happen every day, and he's putting some of this money away in insurance or savings. What will the family see tonight? They'll see less.
That level of poverty is direct translation. If you have some money go to saving funeral insurance, there's less food on the table, less kerosene, less water today or tomorrow. If you're not as poor, it will not be immediately, but it will come.
And, anyway so the experiment worked. The coin was very effective. It was surprising to me that it was so effective. But then it got me to think in another layer, and I said "think about savings. We are used to saving goats, chickens. And when we saved in goats and chickens, what was good about it is we could come home from the office and we can see how much the neighbor is saving, right? Something was visible, saving was visible. Then we moved to money and then we move to digital money. And we took this very important category called saving and insurance and made it invisible. And we took this other category called spending and made it extra visible.
So now we have this challenge that saving is difficult for all kinds of reasons, right? It's long term, it's abstract, all kinds of things, but it's also invisible. And I started thinking more generally about how do we, how do we make the invisible visible?
And, so I'm telling you all this story because you know, I was in Soweto, I had this idea for the coin, I plugged it into the experiment. I didn't think it would be that successful. It came out the most successful. And then it started helping me think about the nature of money and the nature of things that are invisible and to basically think about all kinds of things in life that are right now invisible, and maybe one of our job is to make them visible.
Because if we want something to capture people's attention and to drive behavior, maybe the first step is to make it, is to make it visible.
So, I like this experiment because, and maybe you know, for you, it says, Oh, you know, these are trivial thoughts. It took me a long time to figure them out and the experiment really helped me to think about all of those questions. So that's, that's why I like it so much.
E Thanks a lot. Could you tell us more about why you decided to write a book 'predictably irrational', which is now one of the most influential books in our community? I think, I'm not sure, but I remember you saying your initial idea was to write a book about kitchen or cooking or something like this.
D That's right. That's exactly right. So, I started my career with MIT. A place I loved and I enjoyed being there. And like everybody else, it's a very difficult, not difficult in a bad way. It's a place where people work, work very hard.
My first few years, I used to have office hours at midnights and the students would show up. So I was there writing academic papers and as you know, writing academic papers is not fun for anybody, right? It's not fun to read, it's not fun to write, it's not fun to review. The whole process is a bit bizarre, but that's what you do.
And, and I felt like trying to write something more fun, but I had my colleagues and I didn't want to be judged by, you know, writing something fun. So I thought, how do I find the right distance? Something that is close enough to social science that I can write about social science, which I love, but far away that my colleagues would not say that I'm selling out or something like that.
So I decided to write a book about 'life in the kitchen', and the idea was not so much to write the recipe book. The idea was to take the kitchen as a metaphor for life.
In the kitchen, we try and we fail and we explore. We think about others, we procrastinate, we over-prepare, we under-prepare; I mean lots of things that are happening in the kitchen. So I thought about the kitchen as the lab to make metaphors about life. And because I don't really, I didn't really make experiments on, on kitchen directly, I thought it would be kind of far enough that I couldn't talk about it and close enough that I would have something to say.
Anyway, I wrote a couple of chapters and I start sending them to book agents. And I got the same answer from all of them. Cute idea. You write relatively okay, but what kind of a book is this? It's not a cookbook. It's like, where, where exactly does it, does it fall?
And, somebody says, you know, where would it show in the bookshelf? Like, where would you imagine the bookstore, at the time there were bookstores. So I said, what do you mean in the window? Like what's the problem?
So, anyway, I shopped it from book agent to book agent. I got the same response from everybody. Eventually, there was one person who said, she was very, very kind and she said, look, stop this nonsense. She said, this book will never sell. She said, there's just no hope and don't just try to shop it with somebody else. Right? It just wouldn't sell. Stop it. You're wasting your time and other people's time.
And she said, if you really want to write this book, you first have to publish a book about your research. But I said, but look, but I don't want to write the book about my research. I already write about my research all, all day long. I want to write in a different format. And she said, fine, you have to do it. Find your voice. Try to do something like this. And if you write the book, as you said, doesn't matter how many people would buy it, as long as it will be published, then you could do your cookbook.
E Hmm! So, so we are waiting for your cookbook.
D Now the good news is that in the last 12 years, I go back to that cookbook from time to time. I have, it's, it's all on my hard drive. I keep on changing with it from time to time. I keep on playing with it. So one day it would, it would come.
E Okay, great.
D Before I,
E Yeah, please.
D I want to say something else about writing.
E Please.
D You know, for an academic to start writing for non-academics wasn't easy, and it took me a long time to find the voice of how to write. And if you think about Predictably Irrational, you especially, you know, Eric that you know me for quite a while, and first of all, you could hear my voice there, right? I write in a way that is similar to the way I talk. And it's interesting how long it took me to get there because we all have a different writing voice and speaking voice.
And, to figure out that for me, writing in my speaking voice was, was a good combination. Took me, took me a while. So that's one thing.
The second thing is I took two things from the literature and implemented them in writing. The first one was that I made the research method the hero of each chapter. All right?
So when we, when we give academic talks, we go very quickly over the introduction. These three guys said something else. Here's the essence, here's the experiment. And the experiment is really the mystery. It's the detective novel. It's like, what will happen? Guess what it is.
So I gave a lot of space for the research method. I think the research method is the hero. The unsung hero of social science is how do we take an idea, translate into something, make sure that the important pieces are there, but obstruct the way the unimportant pieces. How do we distill an idea into something testable?
And the other thing I did was I used the 'identifiable the victim effect'. So I could describe a method and I say 250 people did this and 250 people did that. But instead I say, think about John. John! And I give them some information and here's John and here's how John is going through the experiment.
And I did that because I wanted people to try to simulate and feel what it would mean, like it going through one version of the experiment versus the other and then feel the difference that framing does or something else.
So I use the identifiable victim effect as well to get people to identify with one person going through the experiment. And I was hoping that this way they would kind of feel what it would have been like or try to simulate what it would be like to be an experiment.
E Okay, great. Dan, there is some criticism against behavioral economics; sayings that is not so new or we thinkseen people are stupid, so we need to create relevant choice architecture to help people make good decision for themselves or community as a world without taking care of educating or training. So first my question is, do you say behavioral economics experiments have added new knowledge to social psychology to , this your neuroscience, to cognitive, science and so on?
D So yeah, I don't think there's a real question about that. I think the criticism of nothing is new, could be going back to, you know, Adam Smith in the moral sentiment, right?
So, you know, for economists to believe in hyper rationality or rationality is a relatively new thing. And you could come and say, oh, you know, you didn't invent your rationality. We've been talking about it for a long time. That's true. But we stopped talking about it for a while and it's important to keep on talking about that.
So, I think that criticism is whether it's relevant or not, it's whether it's true or not, it's irrelevant. The reality is that, you know, 30 years ago, many decisions businesses and governments made were accessing the rational actor.
That had to have to stop it. There's still too many decisions based on that. And we have to make decisions that are informed on reality. Now, if people are acting perfectly rational in one domain, great, but if they're not, then we're going to make useless decisions.
And you know, because, you know, one of the areas I've been studying is dishonesty.
I think about something like the death penalty, but the death penalty cannot be a severe penalty. You know, the, all the research that has been done comparing States that have the death penalty, the States don't have the death penalty, show no change in crime rates. No change in the crime rate deserves the death penalty and no change in crime rate at all.
So we have this idea, if there was only a big punishment, people would behave very differently, and we do a policy and it's useless. I mean, the only thing it does is it kills people, it's very expensive, but it has no deterrence on crime.
So if we don't understand, like whether behavioral economics is new or not, the reality is that we're, we're not treating it enough. So we need to keep on hammering and saying, let's think about what's true.
And, and by the way, if there are cases where standing economics predict perfectly well, I'm very happy with it. I'm here to help us build a better world, not to fight between psychology and economics. That's, that's not, a good fight to have.
The second thing to realize though is that, you know, I like physics. With physics, things have not changed for a long time. In social science, things change all the time. So, think about something like education, the way we wanted to build an education system when I was a kid is very different from the way we should build an education system right now.
Now there's some principles that are still relevant, like procrastination, how memory works, but there are completely different tools, completely different destructions, completely different things that kids do out of school, completely different ways to socially interact, and we can't ignore all of those things.
So, so social science has the amazing benefit, but also the challenge that life keeps on changing and new problems keep on showing up. Like when I was a kid, texting and driving was not a problem. There were no phones, cell phones, right? So, but now that this is killing lots of people, we have to understand it.
So I think that the world is changing and with it, social science has more problems to deal with. Not problems with the science, but more topics to deal with. New topics, to deal with topics, you know, attention was never that important, now it's a crucial. A crucial topic.
E Okay. The second main criticism to me is about nudging and educating. So what is your perspective in this debate about nudging, educating and even the development of critical thinking?
D So, first of all, you know, I, I think that you know, the word education is used in lots of different ways, but, and you know, different interpretations have different meanings, but one interpretation of the word education is to say you teach people something, they understand it, they internalize it and they use it all the time.
That, I think we just have no evidence for that. And maybe the best example is financial literacy. In the US, we spend between $700 and $800 million a year teaching people financial literacy. And John Lynch and his colleagues, they look at all the studies ever to be conducted on financial literacy and they found out that people remember, right, you go to a class, a long class, a short class.
They look at all of them and people remember what was taught. But in terms of acting differently, the answer is that the change is tiny. It's a little higher immediately after the class, but it goes down quite rapidly. And in total, the estimated improvement is 0.1%, if you look at savings.
And there was a more recent paper that looked again, it's more data and they think it's 0.2%. Twice as much, but both of them are basically zero.
So I think that's a good example. Like we teach people but we also place people in impossible situations. Like imagine I teach you something about how to spend money correctly, but I also give you five credit cards and I also surround you with advertisements. Which one is going to win?
So, I think that, you know, I'm a university professor, I like education, but if you think about education as a, here's the principle, learn it, understand it, internalize it, act 100% by it. That's just a naive assumption. We don't have yet an example for that.
Now we could have, for example, here's a principle, learn it once, execute it once and have it carrying it out for you. Like if we could do education just before people sign up for retirement savings or just before people decide to their mortgage, then I think it's great. But I don't call it education. It's a mindset intervention just before people act.
And the last thing I would say is about nudging. So, the field kind of started in the policy area around nudging. And I think it was a very good starting point, right? Nudging is not threatening. You can say it's not a big, it's just small. It's also cute. It's a nudge. people can opt out. We're not really changing it. And why this frame and that frame, and, and I think it was an easy sell, relatively speaking, an easy sell politically.
But you know, we're 10 years later or 12 years later. And I think it's time to realize that nudging is limited and that sometimes we need things that are much more aggressive.
So, you know, all the nudging in the world would not solve global warming. you know, it's just the system is set up in a way that it's not going to be helpful.
Texting and driving, you know, the forces you're fighting with are just too large. Smoking. So I think when we take some of the big, the big topics, I think we need to figure out where we stand on paternalism and how much are we willing to, to push people and, and be paternalistic.
And personally, the more I study decision-making, the more I'm willing to be paternalistic. Now I did do for myself, but it's, it's open for everybody. I did from myself a calculator to help me think about when I'm willing to be paternalistic.
And it has factors like how big is the size of the mistake that people are making? Small mistake, fine. You know, you buy a different cup- kind of coffee. I don't care. If it's a big mistake, maybe I care more. No, not maybe, I care more. If it's a mistake, is the decision that you make many times, maybe you have the opportunity to learn, so I should be less paternalistic.
If it's something like retirement savings, you know, I don't want people to wake up at age 65 and say, oops, I made a mistake. There's no repeating it. So, when there's a symmetry of information, when the risk for mistake is big, when there's no chance to recover from bad decision, when you need real expertise to make the decision, so I now look at problems and I, I try to think very carefully about what level of paternalism am I okay with. And there's no good answer for this.
We each will have our own response. But, I will say that as the world is getting more complex, as decisions are getting more difficult, and as we move to a world of self-service, right? One of the things that happened with the internet revolution is that we are now our travel agents and we are customer service representatives, and we are own bankers, right?
We do all of these things and the world is becoming more complex, like to decide about your treatment plan now, much, much more difficult than it used to be.
So people also have less time. So the combination of people have less time, decisions are more complex. That all helps me, be more comfortable with higher level of paternalism. And as a field, I think we need to kind of come to some term and, and figure out, how, how we want to handle this.
E So Dan, there is a small book you have written, which has been a key source of inspiration for myself and for the teams. The book is called 'Pay Off'. This one. I like it very much. It's mainly about how a lot of companies are wrong about how they try to motivate employees and what leaders and managers should do to generate much more engagement, wellbeing, performance at work. Could you tell us more about this?
D Yeah, so first of all, I will say that, this book starts with a very difficult introduction, about a kid I was trying to help who was born very, in a very difficult way.
So, I discovered that over the years, writing, I sometimes feel more comfortable sharing with myself partially because I feel like it's an ongoing discussion. Like would you Eric, you know, we met many years ago and you know, and if I write, I have a feeling that people read and react and, and I have an image that we can continue the discussion. So, so it's a very revealing, I think, introduction.
And, then I talk about all kinds of things that, that companies do wrong. But I'll tell you about the new project that kind of overcomes this.
So, I've been spending a lot of time getting lots of data about how companies treat their employees. So in Payoff and in the research, we go to one company at a time.
Here I collected data. I got data sets from many companies across many years. So I have data from 2006 until 2019, of around 800 companies. And for each company I have, how they treat their employees in terms of equality of pay and quality of furniture, and do people feel safe and management transparency and 70 some dimensions.
And I basically play the following game. I said, imagine I have just one dimension, let's call it the quality of furniture; and I'll only deal with the companies that are public companies. And I basically would say, imagine I played the following game.
Imagine in 2006 I got the data for the companies of how they treat their employees on quality of furniture. And I sorted the companies from the companies that treat their employees best to worst, and I bought in the stock market in the price of 2006 the companies who treat their employees best in terms of quality of furniture. And I kept that portfolio.
In 2007 I got new data, and maybe one company went up into my portfolio, one company went down, and I kept the portfolio from 2006 until today off the 20% best company per year who treat their employees best on quality of furniture, on equality between men and women. Each of those 70 some dimensions.
And then I can compare this to the stock market. I can compare it to the S&P 500 for example, the standard measure for the stock market. And it turns out that almost everything beats the S&P 500; actually all but two of the dimension beat the S&P 500. And if I buy the bottom 20%, almost all of them underperformed the S&P 500. So that was kind of amazing because it says that if you measure how companies treat their employees, it's very easy to beat the S&P 500 or to short companies in a good way. But of course some questions or some dimensions outperform the S&P by just development, and some outperform it by a lot. And that's a really interesting question for a social scientist.
So what are the things that get companies to win it by a lot? So, for example, salary, I'll ask you. What do you think, salary matters a lot or matters a little.
E I know because I have read your book. [Laughter]
J I am a little biased -- I'm going to sit here and say it. It means everything to me. I'm talking to my boss right now. So...
Dan: So, so, here is what we find. We find that salary doesn't matter. It matters very little. But wait, wait.
J I need to read that book, Eric. [wink]
D But wait, fairness in salary matters a lot, right? Because, the reality is that the way we experience salary is we don't think about the salary on a daily basis. But if we sit in the cubicle next to somebody else that we feel is, gets paid unfairly, that grinds on us all the time.
A quality of furniture doesn't matter. Things that have to do with autonomy matters a lot. People, companies that rate high on the question. I feel that in this company, honest mistakes are valued, do very well.
The things that really matter are the things that give people autonomy and freedom and respect. By the way, bureaucracy is a killer of productivity, because bureaucracy, what you're doing really is you're telling people, I don't trust you. You go to lunch, show me 16 receipts and a picture to prove that you actually went there.
So, this data for me, was a good cross examination of the market, right? Not company by company, but looking across the market. And by the way, it's true for all sectors.
Like we said, you know, maybe it's just in I.T, but not in manufacturing. Not true. We found the same equation, basically is effective in each strategy.
When we finish this, research project, the question was, what's next? You know, in academics, our 'what next' is let's publish a paper, and let's hope that somebody will take this idea and move forward with this. I didn't think that that's a good, a good way of using, using this data.
So I actually opened the hedge fund. I never imagined I would be in the hedge fund business, but my hope is that, you know, in five, ten years, you know, we have the backward data and we can say, oh, you know, if you think about capital, this is, but I hope in five or 10 years to show people the real returns.
So the kind of my activist heart is to say, when companies buy a warehouse, it's an investment. When companies invest in capital, it's a cost, right? That's just how things are categorized. How do we make it different?
So we're trying to get the US to legislate that every yearly returns, companies will have to ask to report their investment in capital. But I also want these funds to basically have an index there and people say, oh, you know, this is the benefit you get just by treating your employees well.
Well, and, you know, we need the message out. And it's amazing because it's one of those things that everybody seems to know. Like they don't, they don't always know like salary versus relatively salary. They don't always know that this, the, the nuances, people know that it's important, but they don't do enough, about it.
So we, we are here to make it salient and clear and hope that people would pay more attention.
E Yeah. from your point of view, how could behavioral science be applied by organizations or private sector, and for which type of question?
D So, I think it's an all questions that have to do with behavior, right? So, and there are very few questions or not, but if you make a component for a on the phone, you know, I have nothing that I can help you with. , but when it comes to behavior, there's a lot to do.
And I think there's maybe a good distinction between little things and big things. , they are examining what we do now and say we are the next best improvements out there. Can we improve the signup flow? Can we improve retention? Kind of, that's one. And that's the easiest part.
The bigger one is to think in a broad way. What is it that we're really doing here? And what assumptions are we making? And are those assumptions actually right? And that sometimes requires breaking the rules and it sometimes require not being, adherent to the current project and thinking more broadly.
But I think social science gives us a language to think about what is it that we're trying to achieve in this case.
So just as an example, let's say we have a credit card. We can examine the small details. What gets people to use the credit cards twice more per week and what would get people to sign up for automatic payment? All kinds of things like that.
How to optimize points. I mean there's lots of things we could do, right? Lots of value that you could do as a social scientist. But you can also ask the question, what is credit card all about? What is it that we're trying to achieve? Are we, are we trying to achieve an understanding of payments?
Are we trying to confuse people about what it is? Are we trying to help people plan? Are we trying to help people fight more about money or fight less about money with a significant other? Are we trying to get people to use money better or are we try to get people to use worse? But we can think about what it is that we're really trying to achieve. And once we think about that, then we can start rebuilding the product with a better understanding of what it is that we're trying to achieve.
J Unfortunately we’re out of time. Dan thank you so much for everything. Can you share with our listeners where they can get more information about you and your work?
D So I have a website, danariely.com. W-W-W-.-D-A-N-A-R-I-E-L-Y-.-C-O-M. And I am sorry, our time is out. It was lovely to talk to you again, Eric, Jenic, nice to meet you. Looking forward to the next time.