Here I discuss Chapter 4 from Upside of Irrationality, The Not-Invented-Here Bias: Why “My” Ideas Are Better than “Yours”.

I just posted a fun new study (should take about 5 min). If you are willing to take it, please look on the right under “Participate” and press on the “Right Now. Take a quick anonymous survey” link. 

Here I discuss Chapter 3 from Upside of Irrationality, The IKEA Effect: Why We Overvalue What We Make.

In the course of our lives, we come across countless opportunities to help others. The occasional homeless person or charity asks for a donation, or the Red Cross is collecting blood across the street. But most of the time, these opportunities present themselves through our social networks — simply because we interact most often with our friends. One important difference between helping friends and helping strangers is that we know our friends can pay us back in the future, whereas strangers can usually only pay it forward. Of course, all people are not able to help others to the same degree; some people have a lot to spare while others get by on a tighter budget.

My friend Sevgi and I wondered whether people are more generous when others have the opportunity to help them back in the future, and whether people reciprocate based on the value of the gift they received. Our main questions were:

1)    Do people give more when they know they may get something in return?

2)    Do receivers care whether their gift is more valuable in an absolute or relative sense?

To look at these questions, we had people play a simple game as one of two players: lets call them player A and player B. We give $1 to player A and $100 to player B (they both see how much the other gets). Player A can send any amount (of his $1) to player B, and then player B decides how much (of his $100) to send back. In another version of the game, player B cannot give anything back.

Does player A send more money to player B when he knows that B can send money back? How much money does player B send back when player A sends nothing, some of his money, or even his entire dollar?

Looking at the results, we see that people are a) strategic when they offer money initially and b) reciprocating after they have been given money. On average, player A sends more to player B if he knows that B can send something back. And the more that player A sends to player B, the more he receives.

However, the amount sent back by player B does not depend on the absolute value of player A’s initial offer, but on the proportion of player A’s wealth that was offered. What does this mean? If player A has $50 instead of $1 and sends half of it to B ($25), he gets back almost the same amount of money from B as he gets after sending half of $1 (50 cents!).

So, what is the lesson du jour? It turns out that people with limited resources can gain just as much from acting altrustically as those who are well-endowed. Don’t get discouraged by a thin wallet when given the chance to help others — after all, it is your generosity that counts.

~Merve Akbas~

Here I discuss Chapter 2 from Upside of Irrationality, The Meaning of Labor: What Legos Can Teach Us about the Joy of Work.

By Amit and Dan Ariely

For the past few weeks, my 8-year old son Amit and I have been observing birds, paying attention to their individual and particular behavior.  We noticed that some of the birds we observed were different in their physical characteristics like color, shape and size, and that these traits varied with their behavior. This made us wonder about the possible evolutionary links between the appearance of the birds on one hand and their respective behavior on the other.

The first difference that stood out to us was between the small and large red birds. Although the larger ones were about twice as big, their ability to fly was about the same — but what was very different about the two kinds was that the larger red birds were much more aggressive and caused more damage when they attacked. Of course, the evolutionary reason for this difference in aggression seems straightforward; as the subtype of birds gets larger, they need more food, and with this increased requirement, aggression becomes an important survival skill.

The yellow subtype of birds were slightly more of a challenge to figure out. Other than being yellow, their general characteristics were similar to the red birds — but Amit and I couldn’t help but notice their tendency to suddenly fly at much higher speeds relative to the red birds. We speculated that the evolutionary reason for this difference must be that the red birds, by virtue of their threatening color, are less appealing to predators, and as a consequence they never needed to develop enhanced speed to escape. In contrast, the yellow birds practically invite predators to dine with their appealing color. With this clear disadvantage the yellow birds are forced to rely on an alternative survival mechanism, in this case the valuable skill of speed.

Another interesting feature of the yellow bird is that it is sharper, perhaps because it is a species connected with the woodpecker family.  The yellow birds’ sharpness might also help it further when it needs to break down a structure or cut through wood – which again is most likely connected to their need to compensate for their color disadvantage.

The blue birds were fascinating in their ability to self-replicate, and in all of the cases we observed they produced exactly three offspring. We wondered why the blue birds evolved to produce offspring at such speed and timely consistency, and we determined that the evolutionary reason for this must be that because the blue birds are small and relatively slow, they had to develop a skill for efficient reproduction, thereby hedging their bets and increasing the potential to pass on their genes.

The white birds were even more puzzling. On multiple occasions, we watched them drop their eggs while still in flight, naturally crushing the egg. Initially this seemed to be a counter-evolutionary strategy, but once we inspected the discarded eggs we realized that these eggs were abnormal, and it was probably the white bird’s strategy for dealing with eggs that have a low potential for survival. One additional observation in support of this hypothesis is that the white birds seemed to be much healthier, lighter and happier after the eggs were discarded.

Of course there were many other birds as well, including one particularly interesting black bird, and Amit and I are thinking of continuing to pursue this bird-project for a while. In fact, we are already getting somewhat addicted to it, and we just learned that there are plenty more birds to observe in Rio.

But what really baffles us is this: why are these birds SO angry?

Amit and Dan

I am interested in the morally ambiguous realm of music/video/book piracy, a place where everyone has something to say and no qualms about saying it. A couple weeks ago, over a chocolate croissant, I was having what was probably my 5,637^th conversation on this topic, and my new friend (for his own protection let’s just call him Steve — apologies to all the Steves out there) began voicing his opinions: he was vehemently against illegal downloading, but fine with checking CDs out from the library and making personal copies for himself.

The conversation went as follows:

Me: “You know that’s illegal?”

Steve: “It’s a gray area.”

Me: “According to the law, it is not.”

Steve: “I still think it is kind of gray. And I need to put the songs on my iPod to listen to them, so I have to copy them anyway.”

After this conversation I was left wondering whether Steve was a criminal anomaly or if the rest of America was on his side. So I divided a sample of Americans into two groups and had them rate the moral “wrongness” of the two types of piracy. Group A) was told that Steve downloaded an album online without paying and Group B) was told that Steve checked out the CD from the library and made a personal copy.

The Conclusion:  America agrees with Steve. People generally viewed Steve’s actions as significantly less morally adverse when he made a copy from the library.  From a legal perspective, Steve had committed an equally unlawful act, but Americans still viewed the crimes differently.

So how could (illegally) copying from the library be viewed as less wrong than (illegally) downloading?

Illegal downloading has a sting against it while copying does not. Copying does not feel as much like stealing. There’s also a fellow person or institution (like a library or generous friend) to share your sin with. Pirates are a tainted outgroup, but anyone can be a copier of media.

Libraries make it okay. It can be safely assumed that libraries know that we have the ability to copy CDs but make no efforts to stop us; by providing us with the opportunity, they are more or less condoning piracy.

It’s so easy to copy CDs.  For this study our sample consisted mostly of people who do not know how to illegally download online (e.g., they were not particularly aware of cyber lockers or torrent clients). In other words, they probably know how to copy and burn a CD but not illegally download music.  I believe that most of the moral qualms people have against piracy would be wiped away if they just learned a virus-free, super-easy way to pirate high quality media.

I think the “easy” factor is partially why people view streaming illegal content (watching the content within browser without downloading it) as different from illegally downloading. Many illegal streamers say they are okay with streaming but not downloading because streaming is just “borrowing.” I think that, in actuality, people choose not to download because they do not know how, they find downloading to be a hassle, or are scared of viruses rather than because of their high moral standards. To avoid looking incompetent, they say (and believe) that the reason they don’t illegally download is because that type of piracy is morally wrong. But the kind they can do and easily benefit from (like copying from library CDs) is okay.

If you would like to help us out and provide any strong (or morally gray) opinions, please share them with us

~Troy Campbell~

Here I discuss Chapter 1 from Upside of Irrationality, Paying More for Less: Why Big Bonuses Don’t Always Work.

August 26-28th, 2011

Introducing Startup-Onomics

Startup-Onomics is about infusing behavioral economics into the core DNA of new companies.

Through interactive lectures in the morning and 1:1 working sessions with famous industry experts in the afternoon, you’ll walk away with the scientific tools to better understand your customers and build products that meet their needs.

These techniques are proven to increase site conversion rates, create effective pricing strategy, improve customer and employee retention and overall help users change the ‘hard-to-change’ behavior.

What is behavioral economics?

As business owners, we want to design products that are useful, we want customers (lots of them), and we want to create a motivating work environment. But it’s not that easy. In fact, most of the time that stuff takes a lot of hard work and a lot of trial and error.

Good news. There is a science called Behavioral Economics.  This attempts to understand people’s day to day decisions (where do I get my morning coffee?) and people’s big decisions (How much should I save for retirement?).

Understanding HOW your users make decisions and WHY they make them is powerful. With this knowledge, companies can build more effective products, governments can create impactful policies and new ideas can gain faster traction.

For more details see:

http://startup-onomics.com/