The Upside of Irrationality

Cover of "The Upside of Irrationality: Th...
Cover via Amazon

The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home by Dan Ariely is one of my top books for 2010. Below is an excerpt from the book.

THE IMPORTANCE OF experiments as one of the best ways to learn what really works and what does not seems uncontroversial. I don’t see anyone wanting to abolish scientific experiments in favor of relying more heavily on gut feelings and intuitions. But I’m surprised that the importance of experiments isn’t recognized more broadly, especially when it comes to important decisions in business or public policy. Frankly, I am often amazed by the audacity of the assumptions that businesspeople and politicians make, coupled with their seemingly unlimited conviction that their intuition is correct.

But politicians and businesspeople are just people, with the same decision biases we all have, and the types of decisions they make are just as susceptible to errors in judgment as medical decisions. So shouldn’t it be clear that the need for systematic experiments in business and policy is just as great?

Certainly, if I were going to invest in a company, I’d rather pick one that systematically tested its basic assumptions. Imagine how much more profitable a firm might be if, for example, its leaders truly understood the anger of customers and how a sincere apology can ease frustration (as we saw in chapter 5, “The Case for Revenge”). How much mote productive might employees be if senior managers understood the importance of taking pride in one’s work (as we saw in chapter 2, “The Meaning of Labor”). And imagine how much more efficient companies could be (not to mention the great PR benefits) if they stopped paying executives exorbitant bonuses and more seriously considered the relationship between payment and performance (as we saw in chapter 1, “Paying More for Less”).

Taking a more experimental approach also has implications for government policies. It seems that the government often applies blanket policies to everything from bank bailouts to home weatherization programs, from agribusiness to education, without doing much experimentation. Is a $700 billion bank bailout the best way to support a faltering economy? Is paying students for good grades, showing up to class, and good behavior in classrooms the right way to motivate long-term learning? Does posting calorie counts on menus help people make healthier choices (so far the data suggest that it doesn’t)?

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