On the Upside of Irrationality: Catching up with Dan Ariely

On the heels of his best-selling 2009 book – Predictably Irrational – about the emotional and social aspects that influence people deciding on financial matters, Dan Ariely has written a second book about his research. Last week, PopTech caught up with the behavioral economist to talk about his new book, entitled The Upside of Irrationality and what the success of his previous book taught him about his own research.

Upside and Dan

Tell me, what drove you to start writing for a general audience?
I have always been a very applied researcher. I started research on pain because of my own experiences in life. [During his service in the Israeli Army, Ariely was caught in an explosion that burnt more than 70% of his body. He spent three years in the hospital recovering from his injuries. Because of his experiences, Ariely later became to study how people experience pain. He learned that people register less pain when the experience is lower intensity, even if it a much longer duration than brief pain that is a higher intensity.] Social science is the science of everyday life. Everyday is an exercise in psychology. Economics has been so successful in convincing people that we’re rational all the time. Yet my research suggests something different, and writing these books has made it possible for my research to start having more of an impact beyond the academic world.

The experience has been transformative for me. I published Predictably Irrational in a good or bad point in time. All of a sudden, people realized that irrationality was important in economics. People might say that [my] experiments are cute but none of this will work out in big markets. The financial crash has really helped to illustrate my point.

In fact, the financial crash presents a lot of interesting problems. It has also allowed me to be exposed to many more people and situations. For example, I met with some people from a big commercial bank. I asked them, how do people decide which loans to pay back first, or faster? It seems it should be the one with highest interest rate. However, I discovered that rather than pay loans with highest interest rates, they pay the smallest loan first. I even thought that financial decision would have a very negative impact over time.

You’ve written that “Our irrational behaviors are neither random nor senseless—they are systematic … We all make the same types of mistakes over and over.” Yet the applied nature of your research also encourages people to make behavioral changes, which is actually quite difficult.

In general, I don’t think people can change completely, but I do think that even changing one thing is significant. I get emails all the time from people who write to tell me that they changed one critical thing in their lives. Every time somebody changes something, it is a great thing.

I also think that we can’t solve everything by ourselves. It’s also about regulation. We need to understand the mistakes that people make and then we need to think about what kinds of regulations we should be making. Think, for example, about the structure of a cafeteria. If you set up the vegetables first, and the burgers and fries at the end, people will be more like to at least pick up a few vegetables on their plates. Or if you think about roads, without speed limits, people are much more likely to drive too fast and take risks. The question becomes how to create regulations that encourage the kinds of behaviors that encourage people to make decisions that take emotions into account.

One thread in The Upside of Irrationality, as well as in your previous book, is the role of failure. Can you tell me more about that?
Failure for me means a kind of success. If you think something will work out a certain way, and then it doesn’t happen that way, you have really learned something. It advances how we should think about behavior.

Does failure play the same role at the societal level?
Too often, it doesn’t. The wrong lessons are drawn from failure. It rarely plays the role it should play. People often push their heels down and pretend that nothing has happened. So far, that’s what’s happened with the banking system. It will be an incredible waste if the recession and the banking crisis do not lead to any larger changes moving forward.

I noticed that the Upside of Irrationality focuses on more deeply personal issues than your previous book.
It is. Half of the book is about irrationality in the workplace, of which the first chapter is the lecture I gave at PopTech, and how we take credit for other peoples’ ideas. The second half of the book is about the home, and about happiness. This half of the book is very personal, and how irrationality has changed how it has changed my thinking.

For example, there is something called “associative mating.” What makes somebody an attractive date? The thinking is that somebody who is incredibly attractive will pick somebody who is also quite attractive. Usually, people get used to where they are in this hierarchy, and it is something they carry with them from such a young age, it feels natural. For me, I had this serious injury and I was less valuable for looks and dating. This made me think very differently about finding a mate. How would I have to settle? How much have things really changed? It changed my thinking about my research. How do people make sense about who they are in the social hierarchy, particularly when that changes suddenly?

I explore another example in my new book. After my injury, I stopped taking Novocaine when going to the dentist. I wondered, do we develop a different approach to thinking about pain? What I discovered was that a people experience [pain] all the same, but they might care about it in a different way. The kind of pain I had was connected to a traumatic injury. I underwent many painful operations but pain was associated with good things, with getting better. In other words, I didn’t care about pain as much because I had begun to associate with positive changes. By contrast, people who have chronic injuries associate pain in a more negative way. Pain reminds them that they are going to die soon; pain takes on a very different aspect.

Writing about the highly personal aspects of my research has been much more difficult to write. I also care much more about what the reaction to the book will be, which so far has been very positive.

Best of luck to you on your book tour.

A list of Ariely’s speaking engagements is available on his website.

Watch Dan Ariely’s 2009 PopTech talk on Irrational Economics here.

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