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1-Page Summary of The Upside of Irrationality
Overview
We all want to make the best possible decisions. It would be great if we could do that every time, but it’s not always easy. If we knew how to get the best deals in stores, love and work, our lives would improve dramatically.
It’s hard to be rational. We’re not very good at it, and we don’t always have the best judgment either. Still, there are ways to take advantage of our irrational behavior. I’ll give you some examples of how we can do that in this article. You’ll learn about why dating sites rarely lead to happiness; why if you’re a 7 out of 10 on a scale, you won’t get the perfect 10; and why people like earning money even though they know they could cheat their way through life without having to work for it.
Big Idea #1: A hefty bonus isn’t always the best incentive.
Most of us assume that the higher the incentive, the more time and effort we put into a job – and the better our output will be. Based on this logic, CEOs and stockbrokers receive eye-wateringly generous bonuses every year. But recent studies have shown that this assumption is flawed.
In one experiment, rats were put in a maze and given electric shocks. The higher the intensity of the shock, the more they struggled to find their way out. Instead of being stimulated to find their way out, they froze and completely forgot about how to get out.
If you replace the shocks with money and the rats with people, it’s easy to see how difficult it is to concentrate when a fat bonus package is hovering over you at work. Just like rats, people don’t give their best when they’re under pressure.
However, there are times when high incentives lead to great performance. This is the case with mechanical or manual tasks. Innovation and creation is different because it’s not a task that can be done mechanically or manually.
CEOs aren’t paid to do manual labor. Their bonuses shouldn’t be based on how well they perform in a crisis, but rather on their ability to solve problems and innovate. It can actually make them perform worse if they have too much incentive for success. We also see the effects of stress when we give a speech: our preparation goes well behind closed doors, but everything can fall apart when we’re faced with an audience. Hypermotivation is what causes this problem because it makes us want to impress people more than anything else.
So what can we do? One solution could be to offer employees the average of their bonuses over the past five years. That way, performance would still be rewarded but with less pressure and better results.
Big Idea #2: Our motivation at work is a complex phenomenon that can’t be reduced to a paycheck.
Living creatures aim to maximize rewards while minimizing effort. Although it may seem obvious, this notion is contradicted by the concept of contrafreeloading. The term was coined by animal psychologist Glen Jensen, who says that a lot of animals like fish and birds prefer to work for their food rather than get it for free.
When it comes to work, people will do their best if they find meaning in what they’re doing. Just giving them a paycheck isn’t enough.
In one study, two groups of people were paid to build Lego constructions. In the first group, their structures were carefully examined by a researcher. The second group’s structures weren’t immediately evaluated and remained intact. When they saw that their work was being dismantled, those in the second group quit building earlier than those whose structures were evaluated by researchers.
In summary, when we feel like our work is unappreciated or undervalued, it affects our motivation. We don’t do as much work if the task doesn’t have a purpose. Also, if we’re given simple tasks that aren’t challenging to us, we become demotivated because they seem useless. Adam Smith was the first person to come up with the idea of dividing up a big project into smaller parts and assigning each part to an individual worker for completion.
