The Secret Shame of Middle Class Americans (The Atlantic)

The Secret Shame of Middle Class Americans

Daniel Pink— Drive

The Rise and Fall of Motivation 2.0

• Motivation 1.0— biological motivations that come from within

• Motivation 2.0— external rewards and punishments delivered by the environment

•Motivation 3.0— 'intrinsic motivation' fueled by the innate, internal desire for Mastery, Autonomy, and Purpose"self-motivation"

Motivation 2.0 has endured for a very long time due to industrialization and Frederick Taylor's "Scientific Management" (workers are just small cogs in the 'machine' that is a company or business); however, as scientifically proven, it can actually work to undermine the goals it professes to achieve— once you introduce monetary rewards into work it actually reduces people's pure enjoyment of a task and therefore reduces their productivity; this is especially applicable in relation to heuristic (open-ended) tasks versus algorithmic (rote) tasks; similar to Ariely's social/moral norms versus market norms (once you pay people for volunteering it no longer has its moral value and is thus less satisfying on an intrinsic level; money as a reward can become addicting— you need more of it each time you want to 'inspire' someone to do a task s/he obviously didn't want to do to begin with

Why Carrot and Sticks Don't (Often) Work

Seven Deadly Flaws of Carrots and Sticks:
1. They can extinguish intrinsic motivation.
2. They can diminish performance.
3. They can crush creativity.
4. They can crowd out good behavior.
5. They can encourage cheating, shortcuts, and unethical behavior. (most recently, like the teachers and administrators in Atlanta Schools)
6. They can become addictive.
7. They can foster short-term thinking.

If you have routine/rote task that must be done and you need to offer a reward (which can be effective in these circumstances), make sure you:
— offer a rationale for why the task is necessary;
— acknowledge that the task is boring;
— allow people to complete the task their own way. (doesn't sound like a lot of assignments in school)
Then offer an extrinsic reward that is unexpected (i.e. not necessarily promised at the beginning of the task). Engage in "now that" rewarding versus "if-then."

Dan Ariely— The Upside of Irrationality, Introduction

The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home (Dan Ariely)

in a perfectly rational world, procrastination would never be a problem. We would simply compute the values of our long-term objectives, compare them to our short-term enjoyments, and understand that we have more to gain in the long term by suffering a bit in the short term.

We routinely behave as if sometime in the future, we will have more time, more money, and feel less tired or stressed. “Later” seems like a rosy time to do all the unpleasant things in life,

When the designers of modern technologies don’t understand our fallibility, they design new and improved systems for stock markets, insurance, education, agriculture, or health care that don’t take our limitations into account (I like the term “human-incompatible technologies,” and they are everywhere). As a consequence, we inevitably end up making mistakes and sometimes fail magnificently.

This is the real goal of behavioral economics: to try to understand the way we really operate so that we can more readily observe our biases, be more aware of their influences on us, and hopefully make better decisions.

Inventors, companies, and policy makers can take the additional steps to redesign our working and living environments in ways that are naturally more compatible with what we can and cannot do.

This is what behavioral economics is about—figuring out the hidden forces that shape our decisions, across many different domains, and finding solutions to common problems that affect our personal, business, and public lives.

Predictably Irrational— Beer and Free Lunches

beer and free lunches

Standard economics assumes that we are rational— that we know all the pertinent information about out decisions, that we can calculate the value of the different options we face, and that we are cognitively unhindered in weighing the ramifications of each potential choice. The result is that we are presumed to be making logical and sensible decisions. And even if we make a wrong decision from time to time, the standard economics perspective is that we will learn from our mistakes either on our own or with the help of ‘market forces.’ On the basis of these assumptions, economists draw far-reaching conclusions about everything from shopping trends to law to public policy. (239)

Under these assumptions, everyone in the marketplace is trying to maximize profit and striving to optimize his experiences. As a consequence, economic theory asserts that there are no free lunches— if there were any, someone would have already found them and extracted their value.

Behavioral economists, on the other hand, believe that people are susceptible to irrelevant influences from their immediate environment (which we call context effects), irrelevant emotions, shortsightedness, and other forms or irrationality.

The good news is these mistakes provide opportunities for improvement…there are tools, methods, and policies that can help all of us make better decisions and as a consequence achieve what we desire. (240) [saving for retirement, health care, etc.]

Predictably Irrational— The Effect of Expectations

keeping doors open

We might not realize it, but in every case we give something up for those options…in a modern democracy people are beset not by a lack of opportunity, but by a dizzying abundance of it. (148)

What we need to do is to consciously start closing some of our doors…we have an irrational compulsion to keep doors open. (150)

the effect of expectations

When we believe beforehand that something will be good, therefore, it generally will be good— and when we think it will be bad, it will be bad.

Which type of input is more valuable— knowledge before the experience or an input of information after an experience has taken place?

That’s what marketing is all about— providing information that will heighten someone’s anticipated and real pleasure. But do they really? (166)

the power of price— why a 50-cent aspirin can do what a penny aspirin can’t

prices drive the placebo effect

Are we doomed to get lower benefits every time we get a discount? If we rely on our irrational instincts, we will. If we see a discounted item, we will instinctively assume that its quality is less than that of the full-price item— and then in fact we will make it so. What’s the remedy? If we stop and rationally consider the product versus the price, will we be able to break free of the unconscious urge to discount quality along with the price? The effect of discounts is largely an unconscious reaction to lower prices. (187)

the context of our character— why are we dishonest and what can we do about it?

Adam Smith: “Nature, when she formed man for society, endowed him with an original desire to please, and an aversion to offend his brethren. She taught him to feel pleasure in their favourable, and pain in their unfavourable regard.”

“The success of most people…almost always depends upon the favour and good opinion of their neighbors and equals; and without a tolerably regular conduct these can be very seldom be obtained. The good old proverb, therefore, that honesty is always the best policy, holds, in such situations, almost always perfectly true.”

Smith’s theory had a darker corollary: since people engage in a cost-benefit analysis to honesty, they can also engage in a cost-benefit analysis to be dishonest… individuals are only honest to the extent that it benefits them (including their desire to please others). (202)

Sigmund Freud: …as we grow up in society we internalize the social virtues— i.e. the superego. In general the superego is pleased when we comply with society’s ethics, and unhappy when we don’t. Such acts stimulate the reward centers of our brain and make us content. (203)

When we are removed from any benchmarks of ethical thought we tend to stray into dishonesty. But if we are reminded of morality at the moment we are tempted then we are much more lokely to be honest. (213)

the context of our character, part II— why dealing with cash makes us more honest

When we look at the world around us, much of the dishonesty we see involves cheating that is one step removed from cash. (218)

…non-monetary currencies can lead us astray. They let us bypass our conscience and freely explore the benefits of dishonesty. (227)

Upton Sinclair: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”…it is even more difficult to get a man to understand something when he is dealing with non-monetary currencies. (227)

Predictably Irrational— The High Price of Ownership

the high price of ownership

Ownership pervades our lives and, in a strange way, shapes many of the things we do. Adam Smith wrote, ‘Every man (and woman)… lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.’ (133)

Three irrational quirks in our human nature:
1) we fall in love with what we already have.
2) we focus on what we might lose, rather than what we might gain
3) we assume other people will see the transaction from the same perspective as we do (‘one man’s floor is another man’s ceiling’) (134)

Another peculiarity is that we can begin to feel ownership even before we own something.

“virtual ownership” is one mainspring of the advertising industry. (136)

Predictably Irrational— The Cost of Zero Cost, The Cost of Social Norms

the cost of zero cost

• zero price effect: Most transactions have an upside and a downside, but when something is Free! We forget the downside… humans are intrinsically afraid of loss. (54)

…we can use Free! To drive social policy. Want people to drive electric cars? Don’t just lower vehicle registration fees— eliminate them., so that you have created Free! (62)

the cost of social norms

…we live simultaneously in two different worlds— one where social norms prevail, and the other where market norms make the rules…. Social norms are wrapped up in our social nature and our need for community…. Instant paybacks are not required.

…the second world, the one governed by market norms, is very different…. The exchanges are sharp-edged: wages, prices, rents, interest, and costs-benefits. Such market relationships are not necessarily evil or mean— in fact, they also include self-reliance, inventiveness, individualism— but they do not imply comparable benefits and prompt payments… you get what you pay for. (68)

…people are willing to work for free (social norm) or for a reasonable wage; but offer them just a small payment and they will walk away. (73)

…for market norms to emerge, it is sufficient to mention money (even when no money changes hands). (74)

Thinking about money, then, made people more self-reliant and less willing to ask for help… and less willing to help others… they displayed many of the characteristics of the market: they were more selfish and self-reliant; they wanted to spend more time alone; they were more likely to select tasks that required individual input rather than teamwork— just thinking about money makes us behave as most economists believe we behave— and less like the social animals we are in our daily lives. (75)

…when a social norm collides with a market norm, the social norm goes away for a long time… social relationships are not easy to reestablish. (77)

Predictably Irrational— The Fallacy of Supply and Demand

the fallacy of supply and demand

• arbitrary coherence: although initial prices are ‘arbitrary,’ once those prices are established in our minds they will shape not only present prices but also future prices (this makes them coherent). (26)

Initial prices are largely ‘arbitrary’ and can be influenced by responses to random questions; but once those prices are established in our minds, they shape not only what we are willing to pay for an item, but also how much we are willing to pay for related products (this makes them coherent). (30)

…anchors have an enduring effect for present prices as well as for future prices. (35)

…our first impressions resonate over a long sequence of decisions. First impressions are important… (35)

• herding: when we assume that something is good (or bad) on the basis of other people’s behavior, and our own actions follow suit. (36)

• self-herding: when we believe something is good (or bad) on the basis of our own previous behavior… we feel more strongly that we are acting on our own preferences based on past behaviors… we line up behind ourselves. (37)

According to economic theory, we base these decisions on our fundamental values— our likes and dislikes…Could it be that we made arbitrary decisions at some point in the past and have built our lives on them ever since, assuming that the original decisions were wise? (43)

We should pay particular attention to the first decision we make in what is going to be a long stream of decisions. When we face such a decision, it might seem to us that this is just one decision, without large consequences; but in fact the power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come. Given this effect, the first decision is crucial, and we should give it an appropriate amount of attention. (44)

Contrary to traditional economics, consumers willing to pay can easily be manipulated (by supply-side variables: advertising, promotions, displays, MSRPs, etc.), and this means that consumers don’t in fact have a good handle on their own preferences and the prices they are willing to pay for different goods and services….instead of consumers’ willingness to pay influencing market prices, the causality is somewhat reversed and it is market prices themselves that influence consumers’ willingness to pay. What this means is that demand is not, in fact, a completely separate force from supply.(45)

…in many cases we make decisions in the marketplace that may not reflect how much pleasure we can get from different items. Now if we can’t accurately compute these pleasure values, but frequently follow arbitrary anchors instead, then it is not clear that the opportunity to trade is necessarily going to make us better off. (48)

Predictably Irrational— The Truth about Relativity

Predictably Irrational
Dan Arielly

In economics…rationality provides the foundation for economic theories, predictions, and recommendations…. we hold the basic beliefs about human nature on which economics is built— the simple and compelling idea that we are capable of making the right decisions for ourselves. (xix)

This book is about human irrationality….we are really less rational than standard economic theory assumes. Moreover, these irrational behaviors are neither random nor senseless. They are systematic, and since we repeat them again and again, predictable. (xx)

the truth about relativity

…humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather we focus on the relative advantage of one thing over another, and estimate value accordingly. (2)

…most people don’t know what they want unless they see it in context. (3)

…we are always looking at the things around us in relation to others. (7)

… we not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable— and avoid things that cannot be compared easily. (8)

This is the problem with relativity— we look at our decisions in a relative way and compare them locally to the available alternative. (20)

That’s the lesson we can all learn: the more we have, the more we want. And the only cure is to break the cycle of relativity. (21)