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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
Listen to the Intro
The Upside of Irrationality summary
Dan Ariely
The Unexpected Benefits of Defying Logic at Work and at Home
18 mins
What is The Upside of Irrationality about?
In The Upside of Irrationality (2011), Dan Ariely uses behavioral economics to show us why we behave irrationally, how it affects our decision-making processes, and what we can do to make better choices.
Table of Contents
The Upside of Irrationality
summarized in 8 key ideas
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Key idea 1 of 8
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 the quality of our output. Based on this logic, CEOs and stockbrokers receive eye-wateringly generous bonuses every year. But the logic behind this notion has been seriously called into question by several studies.
In one experiment, rats were put in a maze and given electric shocks. The higher the intensity of the shock, the more the animals struggled to find the escape route. Instead of being stimulated to find their way, they froze and completely forgot the layout of the maze.
If you replace the shocks with money and the rats with people, you can imagine how challenging 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 placed under intense pressure.
That said, there are times when high incentives foster high performance, but it’s only when the task at hand is primarily mechanical or manual. When it comes to innovation and creation, it’s a different story.
CEOs aren’t paid for manual labor, and bonus-based incentives may even be detrimental when it comes to problem-solving, creating and innovating. In fact, the potential of a huge bonus can actually make them perform worse.
We can clearly see the impact of stress when we give a speech: our preparation goes well behind closed doors, but everything can suddenly fall apart when we’re faced with an audience. Here, the culprit is our hypermotivation to impress.
So what can we do?
One solution could be to offer employees average bonuses, i.e., the average of an individual employee’s bonuses over the past five years. Performance would still be rewarded, but the pressure to perform before a deadline would be reduced, which would lead to less stress and better results.
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Who should read The Upside of Irrationality?
- Psychology and behavioral economics students
- People who want to know why they act irrationally sometimes
- People curious about human behavior
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