DAN ARIELY

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Which Country Would You Choose, If You Didn't Know Who You'd Be Born As?

August 28, 2026 BY Dan Ariely

Before we argue for the perspective of a particular political party, it’s worth pausing for a question an American philosopher posed more than fifty years ago. When I asked thousands of people to answer it honestly, I discovered something surprising: our disagreements are far smaller than we think.

Imagine the following exercise: tomorrow morning, you are born again. You don’t know which family you’ll arrive into. Maybe a wealthy home, maybe a poor one. Maybe a big city in the center of the country, maybe a remote town. Maybe you’ll be born healthy, maybe with a serious illness. You know nothing about the particular situation you’ll be born into. Now ask yourself: what would you want that country to look like? How would you want it to treat its citizens?

This exercise was proposed in 1971 by the American philosopher John Rawls, in a book — “A Theory of Justice” — that is considered to this day one of the cornerstones of thinking about justice. Rawls called the idea “the veil of ignorance,” and his claim was simple and profound: a just society is one you would be willing to enter it in a random position.

A just society is a society we would be willing to enter first and only then learn that we have been born into a particular economic setting, a medical condition, a gender, and ethnicity.

Under normal circumstances, when we are asked whether our country is a just one, we answer partly from the perspective of justice — but we can’t help but to also answer from the perspective of our own narrow, particular interests. The rich tend to think high taxes are a bad idea; the poor tend to think the opposite. And these narrow interests shape our sense of justice in every domain of life.

But behind the veil of ignorance, when we don’t know whether we will end up at the top or at the bottom, only the question of justice itself remains. What, really, is a just country?

For years, the veil of ignorance served as an important exercise in philosophy seminars. Then my colleagues and I decided to see what happens when you hand it to real people. We asked them to design a country that would be, in their eyes, just — from behind the veil of ignorance. We surveyed a representative sample of more than five thousand Americans: rich and poor, Republicans and Democrats.

What we learned from the results was that Americans thought a just country would be even more equal than Sweden. And, of course, they thought that the actual distribution of wealth in the United States is very far from just.

What was even more interesting: the agreement. Rich and poor, Republicans and Democrat voters (in the 2004 election), men and women — all of them drew remarkably similar ideal distributions. In the noisy political debate, they seem like they are serious enemies. Behind the veil of ignorance, the distance between them nearly disappears.

As our own elections approach, it’s worth running this exercise on our own political beliefs. Ask yourself honestly: would you be willing to enter today’s United States of America in a random position? And if the answer is no — what USA would you design from behind the veil of ignorance?

My guess, based on what we saw in the study, is that if we think in veil-of-ignorance terms, we will discover that we want a very different country from the one we have — and also, mainly, that we agree on much more than we think.

If you find this topic interesting, I’m attaching below two links, one for a very wonderful YouTube video that somebody did about our research, and another one for a short TED lecture I gave on the same topic.

 

Where Is AI Going and Where Are We Going? Will We Be Smart Enough to Make the Right Choices?

August 26, 2026 BY Dan Ariely

The good life is behind the more difficult door.

Imagine that you have two apartments in the same building, on the same floor, two doors right next to each other. In one apartment lives your human spouse. In the other apartment lives a robotic version of that spouse. And imagine that we are a few years into the future, so the technology is not today’s clumsy technology. The AI is better, the robotics are better, the whole thing is convincing.

Now, imagine that you come home at night from a difficult day at work. You are stressed, you are worried, you are depleted. And as you walk down the hallway toward the two doors, you start thinking: which door am I going to open tonight?

Behind one door, the robotic spouse is waiting. The robotic spouse always compliments you. Always supports you. It knows your needs, it anticipates them before you say a word, and it makes you feel good right now, at this moment. Behind the other door is your human spouse, who is basically the same as your human spouse right now. Maybe they also had a difficult day. Maybe they want to talk about the thing you forgot to do.

So which door do you pick to open?

Now imagine that it is a year later. Over the past year, some nights you opened the door to your human spouse, and some nights you opened the door to your robotic spouse. A year into this arrangement, how is your relationship with your human spouse? Most likely, it is worse than when you started. Relationships are not frozen in place. They grow when we invest in them and they shrink when we don’t, and every night behind the robotic door was a night of not investing. Or more correctly, it was a night with the opposite of investing.

And here is the important part: the decline does not stop, and it does not even stay at the same speed. In year two, your human spouse is not hurt the way they were in year one. They are more hurt. They have had another year of watching you choose the other door, another year of feeling compared to a machine that never has a bad day. So they become a little angrier, a little more distant, a little less pleasant to come home to. Which means that in year three the human door is even less inviting than it was in year two, so you open it even less often, so they become even more hurt, and even more hurtful. The relationship is not just worse. It is getting worse faster.

What about five years later? I am willing to guess that five years in, your relationship with your human spouse would be so much worse that on most nights you would not want to see them, and they would not want to see you. And so, one comfortable evening at a time, you would end up with the robotic spouse almost every night. Not because the robot won. Because the human relationship, starved night after night, slowly lost.

Here is the part that worries me. Nobody would ever sit down, look at their life as a whole, and choose a robotic spouse as their picture of a good life. If we made the choice once, seeing the whole road ahead, almost all of us would choose the human. But that is not how we will face the choice. We will face it one night at a time, tired and stressed, standing in front of two doors, and on each individual night the easy door will win. The choices will be small and local, and the outcome will be large and permanent.

Of course, I am not really talking about robotic spouses. I am talking about how we use AI in general.

Every day, many times a day, we stand in front of our own version of the two doors. We can struggle with writing something, get stuck, fight with the words, and eventually produce something we are proud of. Or we can hand it off to an AI model and produce it with much more efficiency and none of the struggle. We can think through a hard decision ourselves or ask for the answer. We can practice a skill, or delegate it. Each easy choice makes perfect sense on its own. And each easy choice also takes a small bite out of the person we were hoping to become.

Why is this so worrisome? Because we are not static either. The same decay that happens to the neglected relationship happens to the neglected skill. Take my own case, writing. If I hand my writing to AI today, tomorrow I will be a slightly worse writer. Not dramatically worse, just a little. But if I handed writing fully to AI every day for a year, my ability to write to reason through an argument, to come up with something genuinely creative, will have undoubtedly go down. Exactly the way the relationship behind the human door went down. And the spiral has the same cruel shape. The spouse who is chosen less becomes angrier and harder to choose; the skill that is used less becomes weaker and harder to use. In year two I am a worse writer than in year one, so the gap between what I can produce and what the AI can produce is bigger, so the easy door is even more tempting, so in year three the gap is bigger still. The person behind the human door became more hurtful every year. The writer behind my own door became weaker every year.

So what do we do? I would like to propose a simple principle: a good life is a life where we take the core things we care most about and keep them for ourselves. Not everything. There is plenty that AI should do for us, and I am happy to hand over the scheduling, the paperwork, the tasks that were never going to make us grow. But the core things, the relationships we want to be in and the skills that define us, those we protect. A good life is a life where we keep developing. Where we invest in our relationships and don’t run from them and we choose deliberately to invest in our most important skills and don’t hand them off.

The technology will keep getting better. The robotic door will keep getting more attractive. The big question, and I mean this as a real question and not a rhetorical one, is whether we will have the wisdom to make the right choices when we face our two doors.

Why Louisiana’s Ten Commandments law is a broken moral compass

August 5, 2024 BY Dan Ariely

Originally published at THE HILL.COM on 07/13/2024

Workers repaint a Ten Commandments billboard off of Interstate 71 on Election Day near Chenoweth, Ohio, Tuesday, Nov. 7, 2023. Louisiana has become the first state to require that the Ten Commandments be displayed in every public school classroom under a bill signed into law by Republican Gov. Jeff Landry. (AP Photo/Carolyn Kaster, File)

When Louisiana Gov. Jeff Landry (R) signed a law in June requiring the display of the Ten Commandments in every public school classroom in the state, it reignited the longstanding debate over the separation of church and state.

Opponents are pleading with federal judges to block the mandate before the school year begins in August. The American Civil Liberties Union and the Freedom From Religion Foundation are actively seeking to challenge the law in court, arguing it is “blatantly unconstitutional.”

From my perspective as a social scientist, a law requiring the Ten Commandments to be hung over every classroom across the state is flawed for reasons that go beyond its constitutionality. I see it as a fundamentally ineffective mandate, because heaps of research say so. And did I mention it would be a waste of tax dollars?

In the extensive research on human dishonesty, one clear finding emerges: Passive reminders of ethical conduct, like displaying the Ten Commandments, do not significantly influence behavior. To instill moral values and ethical behavior, active engagement and a sense of relevance are crucial. Simply hanging up a poster of the Ten Commandments on a classroom wall would not foster the active, lived experience of ethical principles.

Consider the Hippocratic Oath taken by physicians. Properly invoked, the Hippocratic Oath inspires students of medicine and practitioners alike to actively engage with its ethical calling and think about its principles at important moments, not just because it has been deeply ingrained in the fabric of the medical community. Unlike passive displays, active engagement creates a sense of commitment to ethical principles, which opens the door to more ethical behavior.

Louisiana’s new law exemplifies bureaucracy at its worst — it imposes a mandate based on a principle that extensive research has shown to be ineffective. It’s not just controversial; it will make schools feel as if they have dealt with the problem of ethics, when in fact they will not have.

Moreover, the assumption that the Ten Commandments can serve as a universal moral code is increasingly out of touch with contemporary American society. Over the past few decades, the relationship of the average American with religion has become more diffuse, and the influence of traditional religious codes has decreased.

Research conducted over the past decades on moral reminders concludes that active engagement with the moral reminder — such as the Ten Commandments — can decrease dishonesty. But, given Americans’ waning religiosity, that effect is diminished.

For the Ten Commandments to have an impact on thought or behavior, people have to first buy into the idea that the Ten Commandments are a meaningful set of moral rules. Displaying a moral code that doesn’t carry meaning is the equivalent of hanging a poster written in a foreign language.

Together, these two points mean that if someone wants to increase the ethics of our schools and the ethical behavior of our students, the first thing they need to ensure is that the set of moral principles has very deep and broad buy-in.

Next, the engagement with this set of ethical reminders has to be active and intentional. Of course, such programs are much more complex to carry out than simply hanging the Ten Commandments in different corners of schools — but they have the advantage that they might also work to have an impact.

Finally, the trend of setting up rules that are designed to make a political splash and maybe get some headlines but are not thoughtfully designed for efficacy further erodes our trust in politicians and institutions at large — government, corporations and even academia.

As these institutions lose their authority, there is a collective rejection of standard norms of behavior, which I believe are at play in our so-called “culture wars” and other societal trends that have upended American society in recent years.

The breakdown of trust in government and moral codes that historically guided Americans poses a critical question for our democracy: Can we still function effectively without a shared belief system? As we head into another election year, this question becomes even more pressing. Yet its implications extend far beyond politics.

Without a sense of mutual agreement on our ethical principles and without trust that the people leading us are truly interested in our long-term well-being, any efforts to improve behavior — whether through passive or active means — are doomed to fail.

Link to original publication: https://thehill.com/opinion/education/4768231-louisiana-ten-commandments-law/

Introducing – The Center for Advanced Bureaucracy

July 15, 2024 BY Dan Ariely

I’m not sure about you, but in the last few years, I have felt the creep of increased bureaucracy. In general, I think about bureaucracy as having two components. The first is positive, where we’re trying to make things structured, procedural, easier, and less time-consuming. The second is the negative one. This part is about the development of a bureaucratic sub-organization that often has different goals than the overall organization. This bureaucratic sub-organization often ends up serving itself rather than the organization as a whole. This is the kind of bureaucracy that I’m noticing more and more of, and it is deeply troubling me.

One of the challenges is that it is natural for the bureaucratic sub-organization to try and influence the organization as a whole to do less, take less risks, innovate less, and in doing so make the life of the people at the bureaucratic sub-organization easier. It is also tempting for the bureaucratic sub-organization to try and grow by making up new functions, new jobs, and hire more and more people that are part of the bureaucratic sub-organization. And finally, there are the impacts of bureaucracy on the way employees are being treated.

To examine this more carefully, I recently opened a website called the Center for Advanced Bureaucracy (https://centerforbureaucracy.com). Here, I detailed my reflections this way of thinking and share some warning. Check my video on “The Bureaucracy of a Red Sofa.”

Please follow the link (https://centerforbureaucracy.com), have a look, and let me know what you think.

This is me with the Monument to the Unknown Bureaucrat, Reykjavik, Iceland

In Defense of Mistakes

April 17, 2024 BY Dan Ariely

In a world that is hyper-brutal and punishing of mistakes, offenses, and missteps – small or large – on both social media and in real life, it might seem odd for me to promote making more mistakes. Yet, I want to make the case for making more and better mistakes.

I am an expert on mistakes. Not just in the purely theoretical or academic sense, but in the real-life sense. When I was nearly 18, an accident disfigured over 70% of my body with burns, removing nearly all functionality from my hands. I spent the next three years in a hospital missing out on many of the normal experiences of young adulthood. It could have filled me with rage, depression, or regret. Instead, it inspired my life’s work studying human behavior and trying to figure out what we can do to make our lives better. (It also inspired my signature half-beard.)

In my professional life, I have conducted countless studies that just didn’t work out the way I assumed they would. I have left positions under complicated circumstances. I had startups that failed. I’ve had interactions with colleagues that I wish had gone differently. Each of these experiences, while very painful at the time, were opportunities for observing myself and human nature. They became experiences of personal and professional growth.

I have also spent the better part of the past three years reliving a set of decisions I made and actions I took over a decade ago, around a now-infamous study of human behavior using car insurance data. Working in partnership with trusted colleagues, I did what was expected and right at the time. When the findings of the original study were called into question years later, we re-tested our assumptions, publishing results that put doubt on the original findings. When issues with the original data set were uncovered, we retracted the paper. Later we re-examined and replicated the findings, and in early 2024 published two papers that show that the effects of signing first matter (links to the papers are at the bottom of this post), but also that they matter in a more nuanced and complex way. Such is the scientific process. (See link to my official statement about this event).

As I was trying to understand what went wrong with the 2012 paper, people were very quick to criticize and question my professional judgment, casting a shadow over my life’s work. “Where did it all go wrong?” I have asked myself many times a day for the last few years. I have looked long and hard, but given that so much time has passed, I have come up empty-handed, and I simply don’t know for sure what went wrong. “Should I have done things differently?” Evidently. But as I examine all my decisions, I feel that I did the best I could at the time. And I’m okay with that.

Do I wish I did not make these mistakes? Of course. And, not at all. I obviously wish I did not make these specific mistakes, but in general, I accept these circumstances and continue to believe wholeheartedly that mistakes are essential to growth and evolution. Which brings me to my argument: We should all be making more and better mistakes.

What do I mean by that? To start, there is no reward without risk. Think about venture capitalists or investors in the stock market. As they approach their portfolios, they know that getting higher returns necessarily means taking greater risk. Risk, in the context of investing, is about investing in both sure things and in long shots.

Sometimes we also take risks to invest in ourselves or try something new – moments in our lives where we take a leap of faith and hope that things will work out. There is an expectation and understanding that some things will work out and some won’t, but overall, we know that we will be better off for having tried. Succeed or fail, the secret to success is charging forward boldly in new directions.

As a professor, I teach students about the logic, or lack thereof, in taking risks. We do case studies on Amazon’s fail-fast approach. We openly analyze past mistakes to learn from them. We talk about fostering cultures that will help us avoid another O-ring disaster.

There are mountains of self-help books and countless life coaches in the world, each telling us in their own ways that it is imperative to live in service of our desires, free of judgments of others and with more forgiveness for our shortcomings. “It’s okay to fall down. You just have to get back up.”

But the case for mistakes does not end here. It is not just about trying more and accepting more mistakes as the price of learning and success.

I am also advocating for better mistakes. What do I mean by better mistakes? We need to do the wrong thing the right way in order to maximize our learning. Specifically, we should aim to make more mistakes from bold action and fewer mistakes from inaction.

Popular wisdom says that when we look at our life in general, we will feel the most regret over the things we didn’t do. And yet, asymmetrical fear of regret leads us to fear mistakes from bold action more than mistakes from inaction, making us less likely to try new things – and more likely to do nothing.

When it comes to making the case for better mistakes, it means that we should be bolder and a little more fearless, by making a particular effort to make more mistakes from action. Taking calculated risks with a clear objective and having the courage to dust ourselves off if these risks don’t pan out. And try again.

Take, for example, the recent testimony of the three university presidents in front of Congress and the rest of the world. There is no question that this was a tragic performance that set academia back years, at a cost of public opinion that will take decades to rebuild. My sense is that these three university presidents should have dusted themselves off and worked even harder to tackle head-on the violence and hatred on their campus. This of course is a tall ask, and some of their efforts, particularly the more novel and creative ones, might have backfired. Yet, they should have taken more risks and tried different and novel approaches that might have contributed to their universities and to our understanding of how to help people to live in peace and civility with each other.

Sadly, the reactions to their testimonies prompted universities to do the exact opposite. Instead, universities now seem to be working hard to do as little as possible in order to fly under the radar. They seem to be largely motivated by a hope that students, faculty, trustees, and donors will soon forget about this particular war, and maybe even stop paying attention to anything that happens in the world altogether.

If we did more of the opposite of doing nothing and instead took bolder risks, would we more frequently experience the pain of erring, hit ourselves over the head, and say, “Why did I do this?” Sure, we would. But by accepting the downsides of bold action, we also increase the chance that we will learn something useful about how to move forward. If universities took bolder risks, maybe they would have lived up to their social mission and helped all of us better understand how to reduce hate, improve dialogue, and more.

At the end of the day, the progress of society and the success of any individual is made based on the totality of actions. And the biggest enemy of progress is fearing mistakes so much that we end up doing nothing.

To be sure, society can’t function without rules, boundaries, and consequences, but they should be proportionate. We must change the way we judge one another, to allow room for rehabilitation, reconciliation, or recompense. We must promote safer environments for failure, growth, and learning. Otherwise, we will motivate subterfuge among those who try and fail, and instill fear among those who might’ve tried but couldn’t stomach the potential aftermath.

For my part, I am planning on many more years of mistakes. I don’t intend to let fear and regret drive my decisions. I want to keep learning and growing. I intend to continue to make my own mistakes, and I even hope to normalize making more of them. I am optimistic enough to believe that as a culture, we can find a way forward that encourages people to take risks, fall down, and then get back up.

In the words of the famous philosopher, Yoda: “Pass on what you have learned. Strength. Mastery. But weakness, folly, failure also. Yes, failure most of all. The greatest teacher, failure is.”

LIVE AND LEARN.

Irrationally yours,

Dan

Links to the papers

Link to the paper “How Pledges Reduce Dishonesty: The Role of Involvement and Identification“: https://tinyurl.com/ycpumrtk

Link to the paper “I Solemnly Swear I’m Up To Good: A Megastudy Investigating the Effectiveness of Honesty Oaths on Curbing Dishonesty“: https://tinyurl.com/53mbn5ws and see also a link to a discussion about this paper: https://youtu.be/AjQ58irCZGg

Predictably Irrational is 16 years old

February 19, 2024 BY danariely

Predictably Irrational was published on this day (Feb 19th), 16 years ago — 2008. This was just the beginning of the financial crisis of 2008, when we were all trying to understand what went wrong and what are the limits of human irrationality. Predictably Irrational came out at a good timing to help us rethink human irrationality.

I suspect that the crisis of misinformation and polarization that we are facing these days is even more severe and with consequences that are even more dire. Although the damage that we have caused ourselves in this misinformation and polarization crisis (not with bad intention, just by not understanding our human nature) is much slower-moving and not as clearly observable. Which translates into a relatively calm nonchalant approach, where we are not yet in the panic mode we should be in. This time too, I just wrote a book about these topics – Misbelief.

I know that it might seem that my books predict important breaking points in society, but this is not true. I had a few books in between these two that did not coincide with any large-scale crisis.

https://predictablyirrational.com

https://misbeliefbook.com

The Irrational, Episode #1: The Pilot

January 27, 2024 BY Dan Ariely

The Irrational is a TV show on NBC that is loosely based on my life and my research (very loosely). See a link to the show HERE.

Each episode is based on some basic psychological forces, and here I will elaborate on the psychology that is part of the action in Episode 1: The Pilot.

The main theme of this episode is: False Memories

The main psychological principle in this episode is memory; specifically, false memory.  As Elizabeth Loftus has shown, we tend to think that our memory represents our experience in a perfect way. That it works like a camera and that it records events exactly as they took place. But, in fact, our memory includes not only things that happened to us, but also things we imagined, things that other people told us happened, and things we learned about in other ways – and all of these can become mixed with the things that happened to us.

In this episode Alec says one of my favorite sentences: “Memory is the great con man of human nature.” This sums up the idea that we overestimate our memory’s accuracy despite its unreliability.

For more information about False Memories see: https://en.wikipedia.org/wiki/Elizabeth_Loftus

 

The main social science terms used in this episode are:

The cocktail party effect
The cocktail party effect takes place when the brain zeroes in on a specific stimulus, typically auditory, while disregarding other stimuli. The standard case is when a partygoer engrossed in one conversation amidst a lot of chitchat can suddenly hear their name (or the word fire, or sex) when it comes from a discussion that they are presumably not hearing.

Surprisingly, the cocktail party effect suggests that this selective attention takes place after the meaning of the auditory signal is processed which means that at some level we hear the words, but actively suppress them before they arrive at our full consciousness.

For more about the cocktail party effect see: https://en.wikipedia.org/wiki/Cocktail_party_effect

Guilt
Guilt is an emotion that takes place when a person feels badly about compromising their own standards of conduct. It is an outcome of first internalizing the standards of society (don’t litter, don’t lie, etc.). Next, we judge ourselves relative to these social standards, and finally we feel bad — guilty — when our own behavior falls short relative to these social standards.

It is also interesting to contrast guilt and shame. The main difference is that shame takes place only when someone else is watching (or might be watching), and the shame comes from the feeling of being judged by another person.  Guilt on the other hand is independent from anyone watching, which means that guilt means that a person is their own judge.  From this view, we can think about guilt as a more evolved and more desirable emotion, where a person internalizes the values of society and judges themselves relative to those standards independent of anyone else watching or not watching.

For more about Guilt see: https://en.wikipedia.org/wiki/Guilt_(emotion)

The identifiable victim effect
The identifiable victim effect is the tendency of individuals to offer more help when a specific, identifiable person (“victim”) is in need of help, as opposed to a large, vaguely defined group with the same need.

This idea is captured by quotes from both Mother Teresa and one attributed to Joseph Stalin.

“If I look at the mass, I will never act. If I look at the one, I will.” ― Mother Teresa

“A single death is a tragedy; a million deaths are a statistic.” ― Joseph Stalin (possibly)

The identifiable victim effect is based on two components. The first is that people are more inclined to help an identified victim than an unidentified one. The second is that people are more inclined to help a single identified victim than a group of identified victims.

Although helping an identified victim is commendable, the identifiable victim effect is considered a bias, because it causes us to take less action when we don’t know much about the person in need, and because it causes us to act less as the number of people affected by a tragedy increases.

For more about The identifiable victim effect see: https://en.wikipedia.org/wiki/Identifiable_victim_effect

Memory
Memory is often thought of as an information storage and retrieval system. But we should think about it more like an informational processing system with explicit and implicit functioning consisting of a sensory processor, short-term (or working) memory, and long-term memory. Importantly, while we often place a lot of trust in the accuracy and validity of our memory, the reality is that memory is an imperfect repository of information, and its constructive processes change memories over time. In short, memory is less reliable than we think it is. Of course, with the increase of Alzheimer’s disease diagnoses, we are made more aware of the importance of a good functioning memory. We also worry more about losing this very important part of ourselves – a part that is at the core of who we are.

Paradoxical persuasion
Paradoxical persuasion starts with the very simple observation that convincing anyone of anything is incredibly difficult. Just think about the last five years and ask yourself how many people have you been able to convince during that time? Similarly, ask yourself how many times over the last five years somebody else has convinced you that you were completely wrong about something? The reality is that when we engage in an argument we start counterarguing even before the other person has finished their sentence (they of course do the same thing), which is why at the end of a conversation in which two people try to change the other’s opinion, they are often even more steadfast in their own opinion because instead of listening, they have been engaged in arguing for their opinion. Paradoxical persuasion approaches arguments differently by asking people to think about the minute details of their argument. With this approach people often realize that they have not thought carefully about their own opinions. While the person that has considered their position more carefully doesn’t become convinced that they were completely wrong, they often realize that they shouldn’t be as committed to their original opinion as they were before.

For more about Paradoxical persuasion see: https://www.pnas.org/doi/10.1073/pnas.1407055111

Post-traumatic stress disorder (PTSD)
Post-traumatic stress disorder (PTSD) is a disorder that develops in some people who have experienced a shocking, scary, or dangerous event. While it is natural for people to feel afraid during and after a traumatic situation, PTSD is a disorder where the “fight-or-flight” response that was evoked during the initial traumatic event keeps on appearing in the person’s life a long time after the event has passed.  People with PTSD have intense, disturbing thoughts and feelings related to their experience through flashbacks or nightmares and they continue to experience a version of the trauma and are unable to put the traumatic event behind them.

For more about PTSD see: https://www.psychiatry.org/patients-families/ptsd/what-is-ptsd

Reciprocity
Reciprocity is a fundamental driver of human behavior. It is the idea that individuals tend to respond to the actions of others in a manner that mirrors the positive or negative nature of those actions. When other people are nice to us, we feel a need to be nice to them back. When other people are mean to us, we feel the need to act in kind. Reciprocity is also a social norm, meaning that beyond our need to reciprocate, we also feel a kind of social pressure to reciprocate.

What reciprocity means is that in our daily lives we are frequently much nicer and much more cooperative than the self-interested view of human nature would predict.

For more about Reciprocity see: https://thedecisionlab.com/reference-guide/psychology/reciprocity#

Sense of control
How much control do you feel you have over your life? You may feel we have a lot of control, or you may feel you have very little. Having the right amount of feeling of control is what helps keep us balanced. Feeling that we have no control can lead to anxiety, depression, and learned helplessness. And, as I argued in Misbelief, feeling out of control is a main driver that leads us to seek out stories that blame someone else for our problems as a way to help us make sense of our situations.

For more about Sense of control and its damaging effects see: https://misbeliefbook.com (Chapters 3 and 4)

 

My favorite quote from this episode: “Memory is the great con man of human nature.”

My favorite psychological advice from this episode: When we have a negative experience that stays in our memory and we just can’t shake it out, one approach is to try and replace it with something else. We can try to imagine that something else – something specific – happened and do this every day for 100 days. Eventually, the bad memory will fade and be replaced by the better one.

And for fun, here are a few pictures from the set.

 

 

 

 

 

 

I just made up a term — Anachronistic Prejudice

January 25, 2024 BY danariely

Anachronistic Prejudice is a term I recently made up to describe a situation where we use current norms to judge something that happened long ago or to judge someone who lived long ago. The other element of Anachronistic Prejudice is that while we use the wrong norms, we don’t fully realize that we are doing so.

In my mind, this is one of the worst biases of our time in terms of its negative impact on society and on individuals.

How might we fight such a bias?  Here is one way: When you find yourself judging people for something that happened five or more years ago, stop and think about how you behaved during that timeframe. For example, think about your sense of humor 15 years ago. Then think about how likely you would have been, in the same timeframe, to make the same mistake as you are judging them on. Next, add a 50% chance because you are likely to have an overly positive opinion about yourself.

Now go ahead and judge.

Inherent Goodness or Badness: A Reflection

January 16, 2024 BY Dan Ariely

An ancient question has been whether human nature is inherently good or inherently bad. From as early as I can remember, I thought that the right view is that human nature is inherently good. Over the years, my professional experience in social science gave me further support for that view. Why? Because if you consider that the main lesson from social science — that the environment matters! — you have to also believe in a deep disconnect between the potential of people and their ultimate behavior. You put people in one environment and they behave as angels, but put them in another environment and the same people can act in much much worse ways.

What this means is that behavior, good and bad is not a direct reflection on the goodness or badness of human nature and instead, it is to a large degree an outcome of the environment.

As someone who has internalized social science into everything I do, including my basic beliefs and approach to life, my conclusion was ended up being that people are inherently good and with the right environment this goodness can come out. Everything we see that is not great is an outcome of mistakes, bad information, a bad environment, and so on.

Recently, however, the images and stories from the brutal attacks of Hamas on Israel forced me to stop, think, and reflect, and that’s precisely what I have been doing. Should I change my belief about the basics of human nature? Should I update it?

I went over all kinds of evidence in the news and in social media — information that is impossible to reconcile with the idea that people are inherently good. But, even though I struggled with lots of evidence, at the end of the day, I decided that I’m not yet ready to accept that human nature is evil, and I am going to keep on holding onto the belief that people are inherently good.

Yes, it’s true that the evidence for people being inherently evil is much more powerful than I had imagined, and every day I see more and more examples of unbelievable brutality. But, I’m not yet ready to make this shift. Much like Jean Piaget’s approach to child development and their stages, I think that for me too, the evidence is there, but I’m not yet ready to move to a different developmental stage and to admit that maybe people are not as good as I once believed.

Or, maybe I just need to hold on to the goodness view for the sake of my own motivation. I know that we will all keep on revisiting this question over and over in the near future and I hope that in time we will find more reasons to view the world and the people in it in a more hopeful and positive way.

The human catalyst

December 28, 2023 BY Dan Ariely

A strong Human Capital Factor ignites growth.

“I only want to invest in fundamentals.” Such is a common statement from financiers. Yet these self-proclaimed ‘fundamental investors’ are people who regularly ignore a key aspect of a successful business.

The term ‘fundamental’ is used to describe financiers who back companies only when the hard financial data available to them looks positive. While the approach might sound sensible, it is limited – because the available data is insufficient and inadequate.

One of the fundamental predictors of growth that goes largely unquantified is human capital – the people power within a firm that drives it forward. Human capital is a sort of free energy for businesses. When harnessed, it acts like a perpetual motion machine, igniting growth by making companies more innovative, creative, productive, efficient and agile. But, because analysts have struggled to measure it, it is challenging to consider as an input for investment decisions. Irrational Capital is trying to change that with a new metric: the Human Capital Factor™(HCF).

The Human Capital Factor

Irrational Capital mines a plethora of disperse data to create the HCF. Sources include company survey data and publicly available assessments, including reviews on recruitment sites, such as Glassdoor. Some sources are relatively nascent. For example, Glassdoor is a household name now, but only came into existence in 2007. Yet it has been possible to back-test the performance of companies with a high-HCF versus the market benchmark. The results are illuminating.

To analyze the HCF, JP Morgan used the MSCI USA Index, which comprises more than 600 stocks. It formed and tested two share portfolios for the years between 2009 and 2020. As of 31 December in each year, it placed a concentrated portfolio of 30 stocks with the highest HCF scores in the long-HCF portfolio. The 30 stocks with the lowest HCF scores were assigned to the short-HCF portfolio. The portfolios were weighted and regularly rebalanced, to ensure a fair comparison.

The results tell a clear story. The high-HCF portfolio achieved an annualized return of +20.9%, compared to just +13.3% for the MSCI overall. When the high-HCF portfolio was rebalanced to make it ‘sector-neutral’ – reflecting the sectoral composition of the MSCI benchmark – the difference remained profound. The sector-neutral high-HCF portfolio showed an annualized return of +19.2%, substantially higher than the Index benchmark (see Figure 1).

Heavy hitters

One fascinating element of HCF is the way it cuts across all branches of the economy. When we set about quantifying HCF, we’d expected it to be a major factor in the so-called knowledge economy – capital-light firms such as Google and Meta. We had anticipated it to be a less important factor in sectors like manufacturing. The surprise was that HCF is as vital for capital-heavy industries as for capital-light sectors. Why is this? One example might shed some light.

I met Joe, an engineer who worked at a pipe company. The company is unable to use oil as a lubricant when manufacturing its pipes, so it uses molten glass. The raw glass was sourced from recycled car windshields from a major car maker.

The pipe-maker had a problem: a greater proportion than expected of its pipes were cracking and failing, and nobody knew why. Out of an interest in and devotion to his job – not because he had been asked – Joe took it upon himself to do some detective work.

After about two years of self-driven investigation, Joe solved the problem. Car companies were incorporating metal into their windshield glass so the windshields could double-up as integrated radio antennae. The ratio of metal to glass was tiny, but sufficient to make the pipes inordinately prone to cracking. Mystery solved.

One man’s personal mission to solve a critical problem led to huge productivity gains for his company. Its high HCF was evident.

The happiness paradox

Many would assume that the pipe-maker detective, Joe, was self-motivated because he was ‘happy’ in his job. Yet the idea of happiness is over-egged and frequently misused in business. Most humans derive happiness from leisure, not work. Many of us would be truly happy in the moment we found ourselves sitting on a tropical beach, cooled by a pleasant breeze, sipping on a well-mixed mojito. Happy, but unproductive.

Rather, a high HCF comes from a combination of task satisfaction, feeling appreciated, psychological safety, and the degree to which companies provide the conditions where employees can align their own utility with that of the company and its stakeholders. This combination is more related to meaning than happiness. Task satisfaction is the reward one gets from completing a challenge: say, running a marathon, rather than an undemanding leisure activity, such as drinking a cocktail. Psychological safety, meanwhile, is usually derived from a healthy company culture. It gives employees the confidence to challenge decisions, the agency to influence the direction of their company.

Joe expended excess time and energy on an investigation because he wanted to do it. He had intrinsic motivation – and he enjoyed the psychological safety of knowing that he would be listened to when he challenged the use of materials from a longstanding supplier.

Psychological safety is also an antidote to groupthink, a strong predictor of inertia and restricted growth. Rather than being a function of momentary happiness, it gives employees the internal strength to express their real feelings and ideas, and even their dissatisfaction with some aspects of
the company.

When Joe investigated the supply chain and found the weak point, it was not easy news to share, but, because of a high HCF at his company, he felt empowered to do something about it. His company appreciated his efforts and, by changing a policy based on his evidence, benefited commercially from them.

The motivation formula

Intrinsic motivation is like a perpetual motion machine for companies, an invisible, free fuel for growth that can be nurtured in all workers, provided the conditions are right.

Remember the last time you visited a large, branded store and the sales assistant went out of his way to help you? He might have checked the stockroom when the product you wanted was absent from the shelves. He might have called other local branches to check whether it was in stock nearby. That experience is likely to have added to your loyalty with that chain; it added indirect value to the company by making it less likely that you will choose its competitors in future. It also potentially added direct value – by making it more likely that the chain would make another sale. When we think about it, it is easy to visualize equivalent examples, where employees across the board have added value through their own acts, in every sector of the economy.

So, what drives intrinsic motivation? When we explored the factors that contribute, some key findings emerged. It transpires that absolute benefits tend to have only a marginal effect at best: for example, the level of one’s salary is a lesser factor than fairness in the salary structure; the scale of one’s retirement benefits is also a lesser factor than the degree to which those benefits are seen to be distributed equitably. Other factors, such as low levels of bureaucracy and a general feeling of being appreciated by one’s colleagues, are better predictors of intrinsic motivation than financial rewards. Together they drive a key pillar of high HCF – goodwill.

Goodwill is the range between the minimum effort required by an employee to keep her job and the maximum effort possible by that employee if she is fully engaged in her role. The most illustrative study on the factors behind goodwill (Bareket-Bojmel, Hochman and Ariely, 2017) reveals that non-monetary appreciation, such as verbal or written praise, led to productivity increases in the study group – microchip production workers. By contrast, gold did not glitter: monetary bonuses led to a long-term decline in productivity.

The fundamentals of HCF

Goodwill is imperative for a high HCF, yet it is just one of two key building blocks. The other is utility alignment – the willingness of employees to execute tasks that are aimed at the wider benefit of the company. An employee with high levels of goodwill will not achieve her full potential if she is unaligned with the goals of the company (see Figure 3).

 

 

Let us return to our branded store by way of an example. Imagine the chain employs several beauticians to sell its makeup. The beauticians offer free makeup consultations for customers. Their hope is that at the end of each makeover, they will sell the makeup they used.

One day, a beautician notices that the customer could benefit from a face cream that is manufactured by the company, but is unavailable at the makeup counter. It is stocked elsewhere in the store, in the skincare department.

The beautician asks the customer to wait and visits another corner of the store to bring the product in question to the customer. Because the product is stocked by a different department, the beautician gains no commission from the sale. Indeed, if the customer buys the other product they likely spend less on makeup. While the beautician makes no financial gain from the sale, it is nevertheless beneficial for the company and its customer. The beautician recognizes this and acts accordingly. This is what utility alignment is all about.

As Figure 3 shows, when either goodwill or utility alignment are lacking, value is neutral. Where both are lacking, value is destroyed. Yet, when both goodwill and utility alignment are present simultaneously, a lot of value is created. The workforces of companies with high HCF are clustered in this quadrant.

The future bottom line

Traditional accounting considers human capital an ‘intangible’ – something that cannot be measured. Yet Irrational Capital is putting a dent in this traditional practice. Not only can it be measured, it can also be invested in. Through Harbor Capital we offer three exchange traded funds that comprise high-HCF stocks: HAPI, HAPY and HAPS.

The main point is that human capital is not an ethereal factor. It is real and calculable. As we have shown, it is possible to quantify HCF and demonstrate its effect on company performance and value over time. The data that informs the quantification – both public and private – has only become available in the last few years; it is continually being expanded and should become rapidly richer and more extensive.

As it relates to measuring and reporting human capital, traditional accounting is
somewhat limited. The Human Capital Factor is the opposite of intangible. It is demonstrating the ability to make a former intangible tangible; something you can reach out and touch – and invest upon. One day, companies might start reporting on their human capital in their financial statements – and so-called fundamental investors might at last recognize the true fundamentals of business success.

Originally posted on December 1st 2023 here https://dialoguereview.com/the-human-catalyst/

The human catalyst